On Monday February 8, there was an early day trade that hit the tape when the Nasdaq-100 (NDX) was around 13,675. The specific trade bought 100 NDX March 5 13900 Calls for 194.10 and sold 100 NDX March 8 13900 Calls for 208.10 resulting in a net credit of 14.00 points.
Usually when I come across a block trade like this I can theorize what the outlook is behind the trade. This one has me doing a bit of head scratching along with projections around the profit and loss of this spread at various times between now and March 5, the day of expiration for the long leg of this trade.
When the trade was executed there were 19 trading days remaining until March 5. The payout diagram below shows a hypothetical profit or loss based on 15, 10, and 5 trading days until March 5 along with the outcome at expiration of the long leg in this trade.
The worst outcome for this trade on March 5 is NDX closing at the spread strike price of 13900. The estimated loss for this scenario is 58 points, but the trade will likely be exited or altered is this possibility exists as this date approaches. The lines representing the other payoffs, days before the long leg expires, do not show a significant loss if NDX is around the critical 13900 level, which leads me to believe the trade would not be held through March 5 if NDX is within striking distance of that price level.
This trade represents a good portion of the open interest for the two options used to create this calendar spread. An alert has been set and if the trade is altered or exited, we will report back in this space.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Russell Rhoads, PhD, CFA
Russell Rhoads, Phd, CFA is a highly regarded strategist, educator, and consultant – among other things he is perhaps best known as the author of Trading VIX Derivatives, the textbook in the space.
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