Here were a few decent size long premium directional options trades in index ETFs that caught my eye in today’s trading:
EEM – there were a couple bullish longer dated trades in the emerging market etf. First, when the etf was $34 a trader paid 80 cents for 25,000 Sept 36.50 calls to open, or $2 million in premium. These calls break-even at $37.30, up about 10% from the trading level on Sept expiration.
And when the EEM was $33.90 shortly after 11am, a trader sold to open 41,000 Dec 28 puts at 90 cents and bought to open 41,000 of the Dec 35/37 call spreads for 75 cents. This trade package resulted in a new credit of 15 cents (90 cent credit of the put sale less the 75 debit for the call spread purchase). If the stock is between 28 and 35 on December expiration then the trader will receive the 15 cent credit, or $615,000. If the etf is between 35 and 37,. the trade can make up to the width of the spread, plus the credit, with a max gain of $2.15 (the width of the spread plus the initial credit received) if the etf is above $37 on Dec expiration, or $8.8 million in premium. The worst case scenario is that the stock is $28 or below and the trader would be put 4.1 million shares at $28 and suffer losses, less the 15 cent credit.
This trade had a very favorable risk reward profile as there worst case scenario is that you would suffer losses down nearly 18% at the prior lows from January, with gains very near the money targeting a most range for a 6.3% gain in the best case scenario:
QQQ – when the etf that tracks the Nasdaq 100 was $109.45, shortly before noon, a trader apparently rolled a bearish bet, selling to close 50,000 of the April 15th 107.50 puts at 22 cents and buying to open 20,000 of the April 22nd weekly 107.50 puts for 62 cents. Nearly 25% of the QQQ will report next week (AMZN, GOOGL, INTC & MSFT). The QQQ has paused just below what is a fairly interesting technical level at $110, the breakdown level from late August prior to the flash crash and resulted in a 23% decline and then the large gap to start the year on January 4th:
SPY – The etf that tracks the S&P 500 saw a large near term bullish bet. When the SPY was $205.35 a trader paid 18 cents for 115,000 April 22nd weekly 210 strike calls to open, or about $2 million in premium. These calls break-even at $210.18, up 2.3% from the trading level in 9 and half trading days.
Regular readers know my technical take on the S&P 500, simply that the index’s inability to make a new high (for now), which has resulted in two lower lows since the all time highs made last May, and the first lower low made in early February (the first new lower low in the entire bull market since the 2009 lows) leads me to believe that we will again test the Feb low this year. I see this chart as a rolling top, UNTIL we see a series of closes above 2100, or 210 in the SPY, the exact target of the trade just described: