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Want to Protect Those Profits? Here's How

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The slow and steady market rally we have experienced this year has seemingly slowed even more, although the uptrend is still very much intact. But one option trader is betting that the NASDAQ 100 is at or near a short-term top at its current levels.

In one big trade, this trader sold 8,000 of the NASDAQ 100 Exchange-Traded Fund PowerShares Trust 69-strike calls expiring on April 26th against a stock position, for $0.91. This "buy-write" or "covered call" has a neutral to bullish bias, meaning that it will profit if the QQQ stays around this level or moves higher.

(Read More: After April Showers, Market Could Spring Higher)

If QQQ is at 69 at expiration, the stock position will break even, but the option will expire worthless, showing a profit of $0.91. If the NASDAQ 100 declines, then losses on the stock position will be offset by the $0.91 of premium collected on the options.

Lots of traders and investors are having a hard time seeing how the market will be able to rally significantly higher from here in the near-term, and are concerned that the seasonal "sell in May and go away" trade could pressure the market. If you are in this camp, then consider a covered call strategy like this.

Besides the seasonal trade, the other factor putting pressure on the NASDAQ 100 is the fact that the market has become a stock picker's market. Thus, stocks like Apple or Facebook could drag on the index, counter-acting any gains from some of the other names.

Because of these factors, a common trade we have been entering all year is one using index ETF to enter a position that is less risky than a simple long stock position – namely, selling calls against an index ETF position.

This allows you to continue to profit if the broad market simply sputters and stalls here, and also cushions the downside if we do see a sell-off. The other option is to buy puts, which, even with volatility near multi-year lows, can be costly.

I currently recommend selling covered calls on the SPY, while at the same time entering in long stock positions in top stock names. This strategy has allowed us to collect decent income in recent weeks, as we take advantage of any sell-off to sell some bid-up option premiums as we wait for a clearer indication as to the direction the market will take in the spring.

(Read More: Dow's Best QuarterSince 1998? What's Next?)

Disclosure: Brian Stutland is long SPY and short calls

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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