Nasdaq OMX Group reports earnings tomorrow morning, and one
trader is positioning for a big move.
optionMONSTER's tracking systems detected the purchase of 5,000
January 22.50 puts for $2.40 and an equal number of January 22.50
calls for about $2.41, resulting in a net debit of $4.81. The
so-called straddle trade pushed total options volume in the
stock-exchange company to 14 times greater than average.
NDAQ rose 1.89 percent to $22.68 on Friday and is up 24 percent in
the last three months. The operator of financial markets narrowly
beat analysts' forecasts the last time it published results on Feb.
8 and is scheduled to issue its next report before the market opens
on April 30.
Friday's options trade is designed to profit from NDAQ popping
higher or selling off, making money if the stock falls below $17.69
or rallies above $27.31. The strategy will also benefit if implied
volatility climbs above its current 28 percent level, the lowest
reading on the stock in more than three years.
Buying a straddle that expires in January protects the investor
from losing a lot of money to time decay for several months and
gives them more time to profit from a potential volatility spike.
(See optionMONSTER's Education section)
NDAQ has been fighting its way back to the $22.50-$23 area that has
served as resistance during most of 2009. The shares have been
climbing along with the rest of the financial sector since they
found support at $18 in February.
While stock-exchange companies have faced increased competition,
some value investors may consider NDAQ inexpensive because it
trades at less than book value and has a price-earnings growth
ratio under 1. It's also still down more than 50 percent from
its peak in early 2008.
(Chart courtesy of tradeMONSTER)
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