EQD Research: Checking In On Nasdaq-100 Micro Trading

A few weeks ago Nasdaq-100 Micro Options (XND) began trading offering a smaller index option alternative for market participants focused on the Nasdaq-100. There are now XND series expiring every Friday which gives traders a chance to express a short term view using these contracts. The recent availability of weekly expirations prompted me to check in on the activity from Friday.

First, on Friday June 4, a trader came in using XND options to put on an iron condor expiring the following Friday.  Here’s the specific legs of this trade:

Buy XND Jun 11^th 134 Put @ 0.33

Sell XND Jun 11^th 136 Put @ 0.74

Sell XND Jun 11^th 139 Call @ 0.55

Buy XND Jun 11^th 141 Call @ 0.12

Net Credit = 0.84

This trade was executed when XND was quoted at 137.60 and the wings on this trade are both 2 points farther out of the money than the options that were sold. The result is a trade risking 1.16 to make 0.84.  The payoff diagram illustrates various aspects of this trade if it is held to expiration.

Summertime is known for being a less volatile time of the year, this shows up in the Nasdaq-100 Volatility Index (VOLQ). The average close for VOLQ between Memorial Day and Labor Day is 16.73 while the average outside of the traditional summer time period in the US is 18.70. Therefore, a trade expecting low volatility makes sense. However, this one is really threading the needle, needing XND to finish between down 1.16% and up 1.02% on Friday June 11 compared to where XND was quoted at the time of the trade.

Again using the June 11 options, a directional trade in the form of a bull put spread was executed late in the day Friday.  With XND at 137.67 the following spread trade hit the tape.

Buy XND Jun 11^th 134.50 Put @ 0.30

Sell XND Jun 11^th 136.50 Put @ 0.71

Net Credit = 0.41

The short strike in this spread is only 0.8% lower than where XND was quoted at the time of the trade, however there is no risk as long as the Nasdaq-100 (and by direct association XND) is higher on a  week over week basis. The payoff at the following Friday close appears below.

I searched, but could not find a suitable short-term bearish trade, I guess market participants are bullish for the moment on NDX and XND.  However, with weekly Friday expirations now available on the smaller size XND contract I assume bearish trades will follow soon and I’ll report back accordingly.