QQQ DITM Options Trading Plan

Long-Dated, Deep In-The-Money (DITM) Call Strategy

Core Hypothesis

This plan utilizes two distinct strategies focused on buying long-dated, Deep In-The-Money (DITM) Call options on QQQ during significant market pullbacks. The approach relies on the historical tendency of the Nasdaq 100 tracking ETF (QQQ) to rebound strongly over a 3-4 month holding period, aiming for a 50% profit target per contract.

Trade Instrument & Objectives

Action

Buy to Open (BTO) Call

Target Delta

~60 Delta

Expiration

12 Months Out (LEAPS)

Take Profit (PT)

50%

CRITICAL: Stop Loss

NO STOP LOSS (SL) is employed. Risk is managed via position sizing and initial capital allocation.

The Two Strategies

#1: Bull Market Pullbacks

Designed for manageable pullbacks within a broader uptrend.

Trade Entry Criteria
Open on days when QQQ gaps down by at least -1%.
AND QQQ must be trading above the 100 Day SMA.
Position Sizing
Buy to Open 1 Contract (60 Delta, 12M Expiration).
Context / Frequency
Pullbacks in a Bull Market. Historically, approx. 53 trades over the last 5 years.
Management
Requires explicit Monthly Management.

#2: Capitulation Day Trading

Targets extreme downside volatility and potential capitulation lows.

Trade Entry Criteria
Open on days when QQQ gaps down by at least -2%.
Position Sizing
Buy to Open 2 Contracts (60 Delta, 12M Expiration).
Context / Frequency
Very Rare situation. Historically, only 27 days with a -2% gap down over the last 5 years.
Management
No specific monthly management mentioned.

Risk Management & Portfolio Structure

Inherent Risks

  • Risk of Ruin: Since there is no Stop Loss, failure to recover within the 12-month contract life can lead to the trade going to zero (100% loss).
  • Macro Awareness: Must be mindful of prolonged bear markets (e.g., recessions, 2022 rate hikes) that negate the core recovery hypothesis.

Mitigation & Portfolio Structure

  • Capital Principle: Only invest capital you are fully willing to lose.
  • Averaging Down (DCA): The structure allows for multiple active trades simultaneously to Dollar Cost Average the entry price during further market declines.
  • Cash Reserves: Locking in the 50% profit target helps recycle capital and build necessary cash reserves for future entries.
  • Position Limits: Strictly limit the maximum number of active positions based on account size and risk tolerance.