I bought a $496 put on the QQQs about a week ago and it executed on Monday at $496. The trade is now up about $10. Would it make sense to sell puts until I think it reaches support? For example, I just sold a $493 put for about $7. If it continues to drift down, I plan to just roll this put out and possibly sell another $490 put in a few days and use that cash to cover my $493 put. Can I keep doing this until the QQQs hit what I think is support to generate additional income. Is there any risk in this?
You want to keep accumulating short gamma against one put that's D1 now? Rolling is an IQ-test. Perhaps short ATM puts and buy the symmetric wing to hold a fly at zero outlay. Safer and keeps you from the -edge roll.
Selling puts is not chasing down shorts; it does the opposite. It's riding on longs. With you selling puts on QQQ, you are betting that QQQ will go up not go down. And yes you can keep doing it until QQQ reaches resistance, not support. The risk is the same as in any long positions, the downside risk. In your case, if QQQ ever tanks, tanks below your strike, you will be assigned and incur losses, how much loss will depend on how far QQQ tanks below your strike.
oh ok so your bigger risk is getting short-squeezed on your stock's short position. Well then in that case, just so you are aware your short position won't get protected as much by the short put. As long as you are aware, all is good.
Yes, I am aware. So I put a hard stop in the system in case it runs about the put strike. This is the QQQs and I watch it continuously all day and night. Gapping above my stop is unlikely but If so, I will just close the trade. I am aware it is possible.