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You Could Have Turned $500 Into Over $50,000 In One Day As The Market Got Crushed: Here’s How
You Could Have Turned $500 Into Over $50,000 In One Day As The Market Got Crushed: Here’s How
Wednesday was the worst day for the overall market in 2024, with the SPDR S&P 500 Index (NYSE:SPY) trading down more than 2% and the Invesco QQQ Trust Series 1 (NYSE:QQQ) trading down more than 3.5% at the end of the session.
Many mega-cap tech names that drove much of last year’s rally sold off significantly on the day, with NVIDIA Corporation (NASDAQ:NVDA), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) It is Tesla Inc (NASDAQ:TSLA) each traded down more than 5%.
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But even when the market takes a hit, there are ways to make money. Short-term options contracts They are a risky way to play the market, but when they work, they can be a vehicle for making big gains very quickly.
On Tuesday, put contracts on the QQQs with a strike price of $469 expired Wednesday afternoon and closed at $0.05 a contract, according to Robinhood Markets (NASDAQ:HOOD). At the time, QQQs were trading at over $480 per share, making it very unlikely that the index would trade below the strike price.
At their highs on Wednesday, those same contracts that would have cost $5 on Tuesday were worth more than $510 each. That means 100 contracts of those specific puts could have been bought for $500 on Tuesday and sold for more than $50,000 on Wednesday, representing a gain of more than 9,900%.
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Put contracts give the buyer the right to sell the underlying security (in this case, 100 shares of QQQs) at a predetermined strike price, regardless of where the stock is trading, up until the expiration date. With Wednesday’s wicked red day, well outside the standard deviation movement of the overall market, these put contracts exploded in price.
Typically, the $SPY or $QQQs don’t move more than 2% in a single day. But with Tuesday afternoon featuring earnings reports from two of the largest holdings in each index (Tesla and Google), there was an extra catalyst, making the market poised for a bigger-than-expected move.
Not to mention the fact that Wednesday’s rapid increase in volatility also increased the value of the contracts. When the VIX (a market volatility indicator) rises, so does the underlying value of the options contracts. This is because the increase in volatility makes it more likely that a stock could reach the strike price associated with the options contract.
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This article You Could Have Turned $500 Into Over $50,000 In One Day As The Market Got Crushed: Here’s How originally appeared in Benzinga.com
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