Buyside Strategies EQD Research
Aug 12, 2020
By Russell Rhoads, head of research
The weak last half-hour for the Nasdaq-100 (NDX) on Tuesday had me looking for trades that may have reacted to the late-day action. The tale of the tape showed a slew of opening transactions using Aug. 12 NDX options expiring on the close the following day. There were 42 trades of 100 contracts or more on Tuesday Aug. 11, all of which traded the options expiring the following day. It appears that most of the trades were vertical spreads and there may have been one instance of quick profit-taking, something you don’t often see with vertical spreads. Space is too limited to discuss all 21 spreads, so here are a few highlights. Again, all these trades use the Aug. 12 options.
First, a couple of call spreads that appear to be a quick in-and-out trade. A bear call spread traded 393 times at 3:06, selling the 11,000 calls for 53.05 points and buying the 11,010 calls for 48.55 points, taking in a net credit of 4.50 points when the NDX was at 10,983. Just 13 minutes later NDX had dropped to 10,920 and an opposite trade, almost the same size as the bear call spread, bought the 11,000 calls for 31.37 points and sold the 11,010 calls at 27.72 points resulting in a debit of 3.65 points. If this was the same trader, the net result is a quick profit of 0.85 points. Of course, if NDX closes under 11,000 on Wednesday this trade leaves 3.65 on the table, but as volatile as the markets have been in 2020, it may be prudent to take a quick profit.
The rest of the hundred-lot or more Aug. 12 NDX spreads going up Tuesday were all on the put side. The biggest trade sold 450 10,750 puts for 28.70 points and bought 450 10,700 puts for 18.70 points taking in a credit of 10.00 points when NDX was at 10,868. This trade went off with just under four minutes left in the regular trading session. About 10 minutes earlier than this 450 lot, someone sold 252 of the 10,775 puts at 24.60 and bought the same number of the 10,725 puts for 14.60, another trade taking in a credit of 10.00 points. NDX was a bit higher at this time, quoted at 10,911.
A few more put spreads of interest initiated at a credit include selling 150 of the 10,800 put and buying the 10,575 put for a net credit of 3.10 points when NDX was quoted at 11,070, selling 138 of the 10,700 puts and buying the 10,500 puts for a credit of 2.50 points when NDX was at 10,982, and selling 100 of the 10,750 puts and buying the 10,550 puts for a credit of 2.00 points with NDX at 11,069. Of course, all three of these trades take in small credits for a large potential loss if the Nasdaq-100 has a very bearish day on expiration Wednesday.
Looking back over recent history, this sort of trading activity occurs the day before expiration, but rarely to the extent witnessed on Tuesday August 11. We shall see if this is the beginning of a trend where traders take advantage of rapid time decay for options that have one day remaining to expiration or was more of a reaction to the late day mini-sell off in NDX.