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When I began trading credit spreads on the Nasdaq 100, like many others, I used the Invesco Nasdaq 100 ETF (QQQ). It’s accessible, super liquid and familiar — but I wanted to know whether it was actually the best vehicle for a particular strategy.
So I tested the same setup on the Nasdaq index options (NDX), comparing how the trades performed when their strikes were placed at similar levels relative to the market. The results revealed an important difference: NDX often gave the trade substantially more room before it reached the short strike.
That discovery changed what I trade with real money. Today I’ll explain why the extra buffer matters, and why NDX has become my preferred vehicle for my 2 PM Alerts strategy.
The Buffer Room That Changes Everything
NDX trades near 29,000, giving us far more flexibility when selecting strikes and managing risk.
In my QQQ backtest, the average loss was 49% of total risk. More importantly, a losing QQQ position could correspond with an NDX position that still had roughly 100 points of buffer room. Multiple times, the test showed a QQQ loss while the comparable NDX trade won because its short strike was farther from the market.
I’ve seen the same dynamic while forward-testing the strategy. There have been instances when the QQQ-based test showed a loser, but my real-money NDX trade won because of that additional room.
That buffer can mean the difference between taking a loss and collecting the full credit — a major advantage when you’re trying to build a consistent, repeatable strategy.
Other Advantages You Shouldn’t Ignore
Beyond the buffer room, NDX offers structural benefits that make it my preferred vehicle.
NDX options are cash-settled, so there are no shares to deliver and no assignment risk. For the contracts I trade, settlement is based on the closing value at 4 p.m. ET, removing the uncertainty that can accompany physically settled ETF options like QQQ, which closes at 4:15 p.m.
Broad-based index options may also qualify for Section 1256 treatment in the U.S. — 60% long-term and 40% short-term capital gains treatment regardless of the holding period. That can be meaningful for active traders, though I am not a tax professional and you should consult one about your circumstances.Â
Typically, these NDX trades require $500 to $1,000 of risk per contract, with a target of $100 to $200 in income — about 15% ROI on average.
If you want to start smaller, you can replicate the structure with QQQ for around $85 of risk per contract on average. It’s a practical way to learn the mechanics and build confidence before scaling up, so there’s still value in trading either ticker depending on your account size.Â
I prefer NDX because of its tax treatment, cash settlement and — most importantly — the extra buffer room. QQQ remains a practical training ground, but testing showed me that NDX gives this strategy a greater margin for error.
Graham Lindman
Graham Lindman Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.Â
