To hedge your QQQ position at $500 and protect against a significant drop, here are several common option strategies, depending on your risk tolerance and outlook:
1. Buy Protective Puts (Simple but Costly)
How it works: Buy QQQ put options with a strike below 500.
Example: Buy a QQQ 480 put (1–3 months out). If QQQ drops below 480, the put gains value and offsets your losses.
Pros: Simple, effective.
Cons: Costly upfront (premium paid), especially with high volatility.
2. Put Spread (Cheaper Hedge)
How it works: Buy a put (e.g., 480), sell a lower strike put (e.g., 450).
Example: Buy 480 put / Sell 450 put — limits max loss but also limits protection.
Pros: Cheaper than a standalone put.
Cons: Only protects within a defined range (here: 480–450).
3. Collar Strategy (Zero or Low Cost)
How it works: Buy a protective put and sell a covered call.
Example: Buy 480 put, Sell 520 call.
Pros: Often zero-cost or low-cost. Protects downside and generates income.
Cons: Limits upside above 520
4. Covered Put (If You’re Bearish Short-Term)
How it works: If you're okay selling some of your QQQ, sell a covered call and use the premium to buy puts.
Example: Sell 510 call, use proceeds to buy 480 or 470 puts.
