I am with you on the QQQQ Jan 2008 puts. I wrote some on the other thread, if you saw it.
I think your analysis is fairly good. I just want to add, that the Nasdaq might drop 10% earlier than by Jan 2008, and then you could take even higher profit since there is premium left in your option. The premium generally shrinks a lot when the market moves in your direction, so it is not going to be much. But if volatility picks up, premiums could be slightly higher.
Also, even if you don’t want to take profits after a 10% drop, you can still write another option for Jan 2008 for a 20% drop (another 9% drop), at which you would have to take profit then. This second option would give you a credit of roughly about $1.50 (depending on time left and volatility), so if your original put was $3.50, you now can only lose $2.00. But you can also only make your stated return for the 20% drop (+$1.50) and not more.
Anyways, my point is that there are follow-up decisions possible, and the profit situation depends on the time. That’s why people say, for options you need a good timing.
I think ChrisJ wouldn’t short here, but Lance Lewis talked about it on Oct 1st. (http://www.lewiscapital.net)
