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Is there a formal futures NQ vs TQQQ options contracts hedging ratio calculation/strategy to tap on the fast decaying value of weekly expiry TQQQ options thereby creating an asymmetric risk-reward scenario? The goal is if you are wrong, you breakeven...but make a profit if you are right...within a week.

For e.g, If you are bullish, you long NQ futures & sell TQQQ call weekly decaying ATM options

If you are bearish, Short NQ futures & sell SQQQ call ATM weekly options

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Is SQQQ options a better choice than TQQQ options to do this?

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I've looked at this before. It's not perfect. There is probably an arb there. You will have to test it. There is no official formula for it. I've also looked at this with NG vs UNG, CL vs USO, etc.

Grab a TD ameritrade Think or Swim account and put the trades on in the simulation mode and see what works. You can go back in time with Think or Swim and trade a simulated account. You are going to have to play with it and test it.

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  • From your experience, is it better to sell all ATM or staggered amounts in incremental OTM strike prices, e.g, when tqqq=$40, sell 2contracts@42call, 3@43call, etc...?
    – surewin
    Commented Aug 24, 2023 at 6:16
  • I tested this after you mentioned it. I think ATM works better because if you go OTM it could lead to losses if it doesn't act the way you want. When I tested it it did work, but the amount of margin used didn't make sense to implement the strategy. Selling options uses a lot of margin. You could try to use spreads, like sell an option and then go out farther and buy one to decrease your margin. But it would prob affect your model/strategy. The way I tested it it didn't make sense in terms of the amount of margin used. Play with it on Think or Swim.
    – Ryan Kephart
    Commented Aug 26, 2023 at 21:08
  • Thanks for your advice
    – surewin
    Commented Aug 27, 2023 at 12:55
  • Yeah no prob. Let me know if you have any success. I found my notes on this. If I read it correctly the ratio of micro es contract to number of spy options is 1:1.
    – Ryan Kephart
    Commented Sep 5, 2023 at 1:01
  • Also the price of the option is a factor and how correlated the pair is. For example if mes goes up 200 points that equates to $1,000 gain. that would equate to a ~$10 change in spy. If you buy your option for free it's quote un quote a perfect hedge. But if you pay five bucks and it goes up 10 then your game would only be 500 on that one option so you would need two. So you got to factor that in to. Pretty sure I'm going to start trading mes and using the options for risk management. Let me know if you have any good trades or questions or brilliant ideas
    – Ryan Kephart
    Commented Sep 5, 2023 at 1:13

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