Get to Know the QQQQ Options
QQQQ was the ticker of the Nasdaq-100 tracking ETF (now Invesco QQQ) until 2011, when it changed back to QQQ. Options on the fund now trade under QQQ: each contract gives the right to buy (call) or sell (put) 100 shares of the ETF at the strike price by expiration, so traders use them to bet on or hedge moves in the Nasdaq-100 with a single contract. You can pull the current QQQ chain into Excel with the MarketXLS formula =QM_GetOptionChain("QQQ"). Options can lose value quickly; this article is educational, not trading advice.
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What are Options?
Options are derivatives that give the investors a certain financial contract which allows them to purchase or sell a security at a set agreed price and by a certain expiration date. Among the most frequently traded types of options, we find Call options and Put options. Call options enable the traders to buy a certain underlying asset, while put options enable them to sell the asset in question.
Options Pricing
Options pricing is a very important part of the options trading process. Investors need to understand the pricing dynamics and the different components which affect an option’s pricing such as volatility, time to expiration and intrinsic/extrinsic value. The MarketXLS options calculator can be used to approximate the pricing of a certain option by taking into account the above-mentioned factors.
Option Strategies
Options strategies, such as vertical option spreads, involve taking simultaneous positions in two or more options, with the purpose of decreasing risk, improving returns, and balancing portfolios. Traders can also use these strategies to hedge their portfolio and better manage their risk.
Volatility and Risk Management
Volatility is a determining factor when pricing options. As options are relatively cheaper compared to stocks, options traders can take advantage of the leverage offered by options and benefit from the increased potential return. Along with the leverage, traders need to understand the risk associated with options and trading derivatives, to better manage it and possibly reduce it.
Greeks and Option Chain
As derivatives, options are priced using complex equations which involve numerous variables, called “The Greeks”. These are the quantitative part of options pricing which computes the variation in the option price due to each individual aspect of the market. The guide to live option chain data in Excel explains how traders can track option prices and gain a deeper understanding of the market state and the types of strategies they can implement.
Implied Volatility
Implied volatility is another critical aspect of options pricing which measures the expectation of how much a stock price can move. Calculating implied volatility is a way to gauge how the prices of options will be shifting in the future. To properly measure it, factors such as the strike price, time till expiration, and the size of the movement need to be taken into account.
MarketXLS and Options Trading
MarketXLS returns QQQ option chains and Greeks as Excel formulas (=QM_GetOptionChain("QQQ"), =QM_GetOptionQuotesAndGreeks("QQQ")), and the free online options profit calculator charts a strategy's profit and loss across prices. For the spreadsheet workflow, read the options trading Excel guide. Options data is end-of-day on the Standard plan and real-time on the Advanced and Business plans.
Trading options well requires understanding pricing, implied volatility, and the Greeks, and sizing positions so a loss is affordable.
Ready-made option workbooks are in MarketXLS templates.
