Options Trading News

November 20, 2012  Tue 12:21 PM CT

One investor doesn't want to be left out if the Nasdaq stages a New Year rally.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 167,000 January 65 calls in the PowerShares QQQ Trust, which tracks the Nasdaq 100. Premiums rose from $0.93 to $1.04, and volume was almost twice open interest at the strike.

Those calls lock in a $65 purchase price for the QQQ fund, which is one of the mostly heavily traded instruments in the option market every day. The investor now controls the equivalent of about 16.7 million shares for a tiny fraction of the cost, but they will make money only in the event of a strong rally. Otherwise those calls will expire worthless.

The trader probably wants to avoid missing a run in the market but also is scared of the Nasdaq tanking--especially if politicians in Washington fail to remedy the so-called fiscal cliff, which threatens to increase taxes and cut spending at the end of 2012. (See our Education section for more on how options can be used to manage risk.)

The QQQ is down 0.55 percent to 63.43 in afternoon trading, reversing modest gains from the morning. Total option volume in the fund is twice its daily average so far, with calls outnumbering puts by almost 3 to 1.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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