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He is doing leveraged bets that the QQQ stock fund will go up a certain amount. When it goes up to that certain amount, he makes another bet it will go up again
by tryptophan 6y ago
He is doing leveraged bets that the QQQ stock fund will go up a certain amount. When it goes up to that certain amount, he makes another bet it will go up again.
- marketgod 6y agoAt the same time he is using a call spread so the upside is limited to the difference between the contract he bought and sold. Also at the same time, losses are limited. Suppose $TWTR is $49 a share, you buy a call for $50 and sell a call for $60. Suppose the $50 call is $3 that means you paid $3. Then you sell the $60 for suppose $1. So now you are out $2. That's your max loss. Now tomorrow $TWTR goes to $35. Everything expires and you lose $2. Suppose it goes to $300. Then your profits are ($60-50)-$2=$8 Profits Suppose it went to $55. Suppose this is after expiry, then your contract is worth $5 but you paid $3 so you made $2 profit, but you also sold 1 contract, so now you have $3 profits. So in essence, the spread limits your upside, further limits your downside while you are bullish.