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In the U.S. stock options market, option traders focus daily on $SPDR S&P 500 ETF(SPY.US)$ and $Invesco QQQ Trust(QQQ.US)$ them, which naturally makes them perennial leaders in the U.S. stock options trading rankings. Why is that?

Because their liquidity surpasses that of most individual stock options, with small bid-ask spreads, allowing for better entry and exit prices. Moreover, the underlying assets they represent—the S&P 500 Index and the Nasdaq 100 Index—reflect the overall status of the U.S. market, where a SPY option corresponds to 500 individual stocks, directly betting on the market's rise and fall; the other gathers the world's most innovative tech giants, with a single QQQ option placing bets on companies like NVIDIA, Tesla, Apple, Microsoft, and others.

Whether you are engaging in intraday trading, swing trading, or cross-month arbitrage, whether you aim for directional trading, hedging, volatility trading, or income generation, all can be realized through options on these two underlying assets.

Below, we will analyze the practical value of these two options on gold assets from several perspectives: "Basic Knowledge - Hot Opportunities - Practical Strategies," hoping to assist you in your options trading.

Basic Knowledge: What are SPY and QQQ?

First,$SPDR S&P 500 ETF(SPY.US)$ and $Invesco QQQ Trust(QQQ.US)$ both are exchange-traded funds, commonly referred to as ETFs.

What kind of product is this? Simply put, it is a fund that can be freely bought and sold at market prices during trading hours, similar to stocks, and it replicates the performance of a specific index; it rises when the index rises and falls when the index falls. Trading such products is akin to trading a basket of all the constituent stocks in an index. For example, trading one SPY means you simultaneously own a small portion of the 500 companies within the S&P 500 index.

Hot Opportunities: What recent events have impacted SPY and QQQ?

September is undoubtedly a critical juncture for the market, with a series of major events occurring that are crucial for the trends of SPY and QQQ. Below is a table summarizing the potential impacts of these events on SPY and QQQ.

Overall, September may be highly volatile for investors in SPY and QQQ, with the market potentially alternating between the two scenarios of "bad news is good news" (poor economic data → strengthening interest rate cut expectations → positive for the stock market) and "bad news is bad news" (poor economic data → triggering recession concerns → negative for the stock market).

Among the multiple factors affecting the market in September, the expectation of interest rate cuts by the Federal Reserve is a key driving factor, likely providing support for SPY and QQQ. However, after the interest rate cut is realized, there is a possibility that good news (the rate cut) could lead to bad outcomes (concerns about future inflation, fiscal worries, etc., which could drive up long-term interest rates and negatively impact the stock market). Additionally, weak economic data, uncertain inflation trajectories, and disruptions from major technology firms may also pose challenges.

Among the two assets, QQQ is more sensitive to interest rates.

Furthermore, recent options market positioning data (Put/Call Ratio, PCR) indicates that the PCR for SPY and QQQ has been oscillating within a range and remains relatively stable in the short term, while the medium to long-term PCR is still at a relatively high level, suggesting that investors are seeking protection against potential downside risks.

At the same time, the implied volatility (IV) for options on both of these assets is currently at a relatively low level, which presents potential for an increase, thereby providing a buying opportunity for volatility traders.

Practical example: How should options trading be conducted now?

Based on the current environment characterized by frequent market events, anticipated increased volatility, and relatively low IV:

Some may consider buying call options to profit from the supportive expectations of interest rate cuts.

Some may consider going long on short-term volatility, for example by simultaneously buying call options and put options to profit from the volatility triggered by events;

or consider going short on volatility in the medium to short term, such as simultaneously selling call options and put options to profit from the decay of options' time value following an event;

Others may consider a short-term bullish view and a medium-term bearish view, constructing an inter-temporal spread by selling near-term put options and buying put options that expire at a relatively later date.…

The following example illustrates a long volatility strategy using a Long Straddle by purchasing a straddle combination & a Long Put Calendar Spread to go long in the short term and bearish in the medium term by buying inter-temporal put options. The following content is intended for investment education purposes only and does not constitute any investment advice; all data used is as of the close of U.S. markets on September 8.

Strategy 1: Long Put Calendar Spread - Buying Inter-Temporal Put Options

① Premise: You believe that the market may rise before interest rate cuts are implemented and may decline afterwards, and you can accept the possibility that the cost of your investment may go to zero.

② Strategy Composition: Sell near-month puts + buy far-month puts, with the same strike price and quantity for both options. The time value of the near-month puts will depreciate more quickly, thereby subsidizing the cost of the mid-term downside protection.

③ Selecting Contracts: Taking SPY as an example, assume you sell a put option expiring on September 22 with a strike price of $655, and buy a put option expiring on October 24 with the same strike price of $655. Since this strategy yields the highest profit when the stock price equals the strike price at the near-month option's expiration, based on the expectation of a potential short-term rise, the strike price can be adjusted slightly upward.

(The design images displayed on the screen are for illustrative purposes only and do not constitute any investment advice or guarantees.)

④ Net expenditure on transactions (excluding transaction costs): In September, the Put income was $942 per contract, and in October, the Put expenditure was $1,366 per contract, resulting in a net expenditure of $424 for this group of options.

⑤ Scenario revenue (excluding transaction costs, analyzed as of September 22):

⑥ Risk management: It is essential to ensure that there are sufficient funds in the account to cover potential obligations, in order to avoid the risk of margin calls that could affect other positions and overall returns in your account.

Strategy Two: Long Straddle - Purchasing a straddle combination.

① Premise: You anticipate increased short-term volatility in the market.

② Strategy Composition: Buy Put + Buy Call, with identical strike prices, expiration dates, and contract quantities for both options.

③ Option Selection: For bullish volatility, QQQ is superior to SPY. Regarding expiration dates, consider shortly after the monetary policy meeting, for instance, September 22. For strike prices, select one that is closest to the current underlying asset price; for example, as of the market close on September 8, QQQ was priced at $578.87, thus a strike price of $580 could be chosen.

(The design images displayed on the screen are for illustrative purposes only and do not constitute any investment advice or guarantees.)

④ Net expenditure on transactions (excluding transaction costs): a payment of $1,366.

⑤ Profit and loss range (excluding transaction costs): On the expiration date, if the price of QQQ is below $566.34 or above $593.66, there will be profit; the further the price moves beyond these thresholds, the greater the profit. The maximum potential loss occurs if the two options expire worthless, resulting in a loss of $1,366.

However, it is generally not necessary to wait until the expiration date. Before the expiration date, the price may have already shifted to one side, and when you assess that the options on the other side are unlikely to reach the exercise conditions, you can close your position to sell and take timely losses, thereby preventing the maximum loss from reaching $1,366.

⑥ Risk control: In addition to the aforementioned stop-loss methods, regardless of the outcome of the event, implied volatility (IV) typically collapses rapidly within a few minutes to hours after the event is announced, leading to a quick decay of the options' time value. Therefore, for short-term trading, it is essential to close positions promptly after the event to avoid the risk of value dropping to zero. If you are new to options trading, it is recommended to start with simulated trading to familiarize yourself with the profit and loss characteristics before engaging in real trading.

That concludes today’s discussion. If you have any thoughts or suggestions regarding investment strategies for SPY and QQQ, please feel free to leave us a message!

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Futu Securities analyst Wei Wenbo

License number: BUI890

(The author is a licensed person under the Securities and Futures Commission, and neither he nor his associates have any financial interests in the proposed issuer of shares.)