Buyside Strategies EQD Research Sponsored Articles
Feb 20, 2021
By Russell Rhoads, head of research
One of the great things about having multiple options expirations available is that short term outlooks may be traded utilizing option contracts. Late in the morning on Friday February 19 a trader came in with a short term outlook for the Nasdaq-100 (NDX) using options that expire on Wednesday February 24.
With NDX at 13660 a trader sold 100 of the NDX Feb 24 13300 Puts for 28.70 and 100 NDX Feb 24 14000 Calls for 10.95. They completed an NDX iron condor by purchasing the 13200 Puts for 20.55 and 14100 calls for 5.60. The net result is a credit of 13.50. The chart below shows NDX daily price action for 2021 also highlighting the levels for the short call and puts strikes from the iron condor.
The percent price changes are based on where NDX was quoted at the time of the trade. The 14000 price level was 2.46% higher while the 13300 price level represents a drop of 2.67%. Combined, that’s a range of just over 5% and as long as NDX remains in the range through the close on Wednesday February 24 this trade will realize a profit equal to the 13.50 credit received when the trade was executed. The payoff diagram below shows the outcome if the trade is held through expiration.
A big move from NDX over the following three days could result in a loss of 86.50, but if a large move occurs it is likely the trader behind this position will do some sort of managing transaction to avoid the maximum potential loss. If that is the case, there will definitely be an update in this space discussing the follow up trades.