Longer Term Outlooks Using NDX Options

We know all the rage is about short-dated options trading, but there are still market participants using the option market for a long-term outlook. On Monday last week, with NDX around 13,407, a trader came into the market buying 200 NDX Jun 16 12000 Puts for 33.80 and selling 200 NDX Sep 15 Puts for 225.00, each taking in a credit of 191.20. We thought this may be a rolling transaction, but the open interest increased by over 200 for each contract so both legs are opening trades. Also, each of those expirations are standard 3rd Friday AM settled contracts. The estimated payoff at June expiration appears below. 

This is an interesting payoff with a buffer down to 13100 based on the short September put position remaining open at that point. The worst-case scenario is a loss of about 345 points if NDX is at 12,000. We doubt the goal is for NDX to drop below 11,234 in the next few weeks, but that is a downside break-even on this trade.

Another big NDX trade from last week appears to be focusing on the long-term. One Tuesday, with NDX around 13,427 a trader came into the market and sold 200 of the NDX Dec 15th 11000 Puts for 233.50. The payoff at expiration for this short put appears below. 

This trade likely hopes that NDX is above 11,000 at December standard expiration. The break-even involves a drop of 19.8% from where NDX was when the trade was executed. Since NDX moved up to end the week, we checked in on the trade and it is already up about 38.50 with the option finishing the week at 195.00. Not too shabby for a short-term trade, but they are likely hoping to pocket the whole 233.50 premium which will result in someone getting a GI Joe with a kung-fu grip for Christmas.

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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