And just like that, we’re back in the black. Our puts on EEM and XLE both hit their price targets on Friday, resulting in respective gains of 66.7% and 49.7%, or a combined $2,196 on $3,804 risked (+57.7%). If you held onto the plays, you’d have triple-digit gains, but while cutting our winners short has been a problem for our portfolio, I refuse to look at gains of this size in a negative light.

All told, we’ve now entered a total of 18 positions, 14 of which have been closed out, 10 for gains. Those 10 winners have resulted in profits of at least $7,108, while our four losers have generated losses of $4,012, leaving us up $3,096 on the 14 plays we’ve closed. How about our open plays?

We’ve basically written off our plays on GLD (bullish) and XLF (bearish) as lost causes, but our XLF puts have more than doubled since Thursday, up to a semi-respectable $0.15. We paid $0.45 to enter these puts, leaving us down 67%, which is bad, but far from a “total loss.” I like holding these puts in anticipation of XLF posting more losses – the market’s rally appears to have run out of steam.

That leaves us in good position on our SPY debit put spread, which is back in the black, as of this writing. The PM puts we bought on Thursday should have entered at $0.90, and they recently traded at $1.10. As of 10:30am ET, we’re down a combined $2,694 on our four open plays, which leaves us up $402 overall, or a little over $40 per week. That may not sound like a lot, but it’s a pace of $2,090 on an annualized basis, or more than enough to pay for your $2,000 subscription fee, and – and assuming our SPY and PM puts end up closing out for 20%+ gains and our XLF puts improve – we’ll be looking much better by this time next week, even if GLD remains stuck in a deflationary rut.

And, of course, between now and then, we hope to enter another profitable play or two, starting with a debit put spread on the PowerShares QQQ Trust ETF (ticker: QQQ).

Investment Thesis

QQQ bundles the 100 biggest stocks trading on the Nasdaq market, weighted according to their market caps. Just six of these 100 stocks – Amazon, Apple, Facebook, Gilead, Google, and Netflix – have accounted for more than half of the Nasdaq’s $664 billion in gains through Friday’s close, and it doesn’t seem as though any of them have enough juice left in them to take the market much higher.

1. Amazon posted a surprise quarterly profit on Thursday night, sending its shares up 22% in after-hours trading, but they slid throughout Friday’s regulation session and ended the day up 9.8%.

2. Apple’s blowout Q2 earnings were shunned, just like its blowout Q1 numbers, as the stock is too big to be taken higher by the Wall Street casino gamblers, and thus is stuck in a rut.

3. Facebook will report its Q2 earnings after the closing bell on Wednesday, and while the company is fantastic, its shares have already made big gains on the heels of Google and Amazon, which means that any good news is likely already baked into its share price.

4. Gilead lost 4.11% on Friday, as the biotech bubble looks to be rapidly deflating, with fellow biotech component Biogen falling a staggering 22%. Gilead reports after the bell today, and even if it announces blowout numbers, it alone won’t be enough to take the Nasdaq higher.

5. Google’s shares posted the biggest one-day gains in human history when it reported Q2 earnings on July 17, but the stock has now fallen from a high of $713 to a recent $665 – a 6.7% decline.

6. Netflix is a hype stock with a much smaller market cap, at $46 billion, than the rest of these titans. Gilead’s the next smallest at $164 billion, and the other four stocks average $419 billion, or nearly ten times Netflix’s size. Netflix will not be able to be a market mover, regardless of how many people love Orange is the New Black.

Now let’s take a look at QQQ‘s chart:

I’ve drawn in dotted lines at $111 and $106. As you can see, the $111 line provided resistance at Points B and C, and when QQQ finally broke above $111 at Point E, its shares rocketed much higher. On Friday , QQQ tanked but found support at the $111 line – but today, it has broken beneath it; a very bearish sign. Now support will turn back into resistance, and QQQ should have difficulty breaking north of $111.

On the downside, QQQ caught support at $106 at Points A and D, and it could likely rebound there again. This is why a debit put spread on QQQ makes so much sense here: We can buy QQQ‘s $111-strike August puts, since we think QQQ is likely to fall further below $111 between now and August 21, when the puts expire; and we can subsidize this purchase by selling QQQ‘s $106-strike August puts, since we think the ETF is likely to catch a bounce at that level.

The Play

As of 11:56am ET, QQQ‘s $111-strike August puts were trading at $2.12, with a bid/ask of $2.04/$2.05. Daily volume had already reached 9,478 contracts, and open interest stood at 26,464. QQQ‘s $106-strike August puts were at $0.67, with a $0.63/$0.64 bid/ask, 631 contracts in daily volume, and 73,795 in open interest. Combined, the ask on this spread was $1.42, which means we could spread it across 13 contracts per leg.

Sample Ticket:

Exit strategy: The maximum value of this spread is equal to the difference between the strike prices, or $5. Assuming an entry price of $1.42, this means our maximum profit would be $3.58. Let’s see how things play out this week before setting a price target.

– Happy trading!

Open Plays

GLD $113-strike August calls

Entry price and date: $1.80 on 7/6/15

Position Size: 10 contracts

Total Risked: $1,800

Current bid/ask: $0.12/$0.14

Target: Continue to hold for a better exit

As I stated on Thursday, our GLD play is essentially a “lost cause.” Nevertheless, there’s a lot of time on the board until these calls expire on August 21, and the markets have been getting volatile. This is normally the environment in which GLD performs well, but of course, that hasn’t been the case in 2015. Let’s continue to hold and hope for a spike – I’d consider closing the play out for even a 75% loss, which would be at $0.45 – still a long way off from the current bid.

SPY $203/208 September debit put spread

Entry price and date: $1.80 on 7/2/15

Position Size: 10 contracts per leg

Total Risked: $1,800

Current bid/ask: $1.86/$1.91

New Price Target: $2.50 (for gains of 38.9%).

Our debit put spread on SPY is back in the black, up 48.8% from Thursday’s bid of $1.25 to a recent bid of $1.86. Since our maximum gain on this play is limited to the $5 distance between the strike prices, less our $1.80 entry, let’s go ahead and set a price target of $2.50, which would give us gains of close to 40%.

XLF $24-strike August calls

Entry price and date: $0.45 on 7/9/15

Position Size: 40 contracts

Total Risked: $1,800

Current bid/ask: $0.14/$0.15

Target: Continue to hold, looking for a better exit.

We’ve seen substantial improvement on our XLF play, which I was prepared to consider a “total loss” as recently as Thursday. Now these puts are back up to nearly 1/3 of their original value, which means we could close out the position to salvage $600 – that buys a lot of peanuts. Still, I think with the market’s general direction looking bearish, we can hold on and possibly turn a profit on these puts.

PM $82.50-strike September puts

Entry price and date: $0.90 on 7/23/15.

Position Size: 18 contracts

Total Risked: $1,620

Current bid/ask: $1.00/$1.03

New Price Target: $1.20 (for gains of 33.3%).

We entered this play on PM on Thursday at $0.90, and the puts went as high as $1.20 the next day. We hadn’t yet set a price target, but when the puts reach $1.20 again, I think we should snatch the 33.3% profits. With the market headed into a tailspin, defensive consumer-staple components like PM may hold up better than the broad market, and the euro’s recent gains against the dollar are also bullish for PM. Taking profits too early has been a problem, but sometimes profits need to be taken while they’re there.

Previous Winners

PM $80/$82.50 September debit put spread

Entry price and date: $0.97 on 5/18/15

Position Size: 20 contracts per leg

Total Risked: $1,940

Closed: Sold at $1.19 on 6/5/05 (10:43am ET)

Profit/ Loss: +22.7% ($440 profit)

MCD $95/$100 June debit put spread

Entry price and date: $2.15 on 5/21/15

Position Size: 9 contracts per leg.

Total Risked: $1,935

Closed: Sold at $2.60 or higher on 5/28.

Profit/ Loss: +20.9% ($405 profit)

BA $150/145 July credit call spread

Entry price and date: $1.45 credit on 5/26/15

Position Size: 5 contracts per leg

Total Risked: $1,775 ($725 credit received)

Closed: Covered at $0.71 on 6/29/15 (9:38am ET)

Profit/ Loss: +20.8% ($370 profit)

QQQ $113/110 June credit call spread

Entry price and date: $1.36 credit on 5/28/15

Position Size: 12 contracts per leg

Total Risked: $1,968

Closed: Covered at $0.16 on 6/15/15 (12:16pm ET)

Profit/ Loss: +90.2% ($1,776 profit)

USO $21-strike July puts

Entry price and date: $1.48 on 6/1/15

Position Size: 12 contracts

Total Risked: $1,776

Closed: Sold at $1.96 on 6/5/15 (9:33am ET)

Profit/ Loss: +32.4% ($576 profit)

UUP $25-strike September calls

Entry price and date: $0.58 on 6/8/15

Position Size: 32 contracts

Total Risked: $1,856

Closed: $0.70 on 7/17/15

Profit/ Loss: +20.7% ($384 profit)

IWM $126-strike July puts

Entry price and date: $1.12 on 6/22/15

Position Size: 17 contracts

Total Risked: $1,904

Closed: Sold at $1.45 on 6/25/15 (2:18pm ET)

Profit/ Loss: +29.5% ($561 profit)

XLU $43-strike July calls

Entry price and date: $0.20 on 6/29/15

Position Size: 80 contracts

Total Risked: $1,600

Closed: Sold at $0.25 or higher on 7/7/15.

Profit/ Loss: +25% ($400 profit)

EEM $38.50-strike August puts

Entry price and date: $0.90 on 7/13/15

Position Size: 20 contracts

Total Risked: $1,800

Closed: Sold at $1.50 or higher on 7/24/15.

Profit/Loss: +66.7% ($1,200 profit)

XLE $72-strike August puts

Entry price and date: $1.67 on 7/20/15

Position Size: 12 contracts

Total Risked: $2,004

Closed: Sold at $2.50 or higher on 7/24/15.

Profit/Loss: +49.7% ($996 profit)

Previous Losers

AAPL $131-strike June calls

Entry price and date: $1.53 on 6/4/15

Position Size: 13 contracts

Total Risked: $1,989

Closed: Sold at $0.55 on 6/11/15 (2:23pm ET)

Profit/Loss: -64% ($1,274 loss)

GILD $125/120 July credit call spread

Entry price and date: $1.51 credit on 6/11/15

Position Size: 5 contracts per leg

Total Risked: $1,745 ($755 credit received)

Closed: Covered at $2.21 on 6/25/15 (12:21pm ET)

Profit/ Loss: -20% ($350 loss)

GLD $110/115 September credit put spread

Entry price and date: $1.94 credit on 6/15/15

Position Size: 6 contracts per leg

Total Risked: $1,836 ($1,164 credit received)

Closed: $3.54 on 7/16/15

Profit/ Loss: -52.3% ($960 loss)

DOW $52.50/55 July debit call spread

Entry price and date: $1.17 on 6/19/15

Position Size: 17 contracts per leg

Total Risked: $1,989

Closed: Sold at $0.33 on 6/29/15

Profit/ Loss: -71.8% ($1,428 loss)

Jason’s Bio

Jason Seagraves is a 37-year old writer, options trader, entrepreneur, homeschool dad, and evangelist for free-market economics. He launched a successful dot-com business while still in college in the late 90’s, and then went back to school to graduate with a degree in Business, concentration in Finance, from Siena Heights University in 2006. That year, he also earned a Series 7 stockbroker’s license, but opted to pursue a career in freelance writing. From 2008 through 2013, he worked as a “ghostwriter” for a popular stock and options trading newsletter, before joining up with Dividend Lab for a stint in 2014. Now he’s back providing market commentary and actionable options trades for the Big Deal Newsletter, and he’s happy to be here!

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