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How One Big Trader is Buying Volatility into this Week Using the November Nasdaq Options

We've a very interesting week setting up. As of this writing, polling results are piling in, and the market seems primed to move on whether or not the Republicans take back the legislati...

Wait, that's rubbish.

We've seen how politics can be a red herring in this market. Remember the Scott Brown rally?

The real market moving news is starting to come through. We've had rate hikes out of Australia and India, and we've got a market moving fed meeting tomorrow. I feel that forex land holds much more weight compared to domestic policy.

Anyways, very interesting trade out on the QQQQ options.

At 11:09, we saw 2 large option blocks come across the tape:

Buy 15,000 QQQQ Nov 54 Calls @ .42

Sell -10,000 QQQQ Nov 52 Calls @1.42

This was a fairly large ratio spread set up. They were buying more OTM options, which means they were probably getting long gamma. Let's see what the risk looks like:

So the trader benefits if the market either has a moderate pullback or goes bonkers to the upside. It technically is a net short play, but it isn't for very long.

I actually like this trade going into this week. While the 30 day normalized vol remains fairly elevated, premiums aren't running that high right now. So this gives the trader a nice low risk way of getting downside exposure, with a vol kicker if we do squeeze. This trade is most likely a hedge and paired up with stock or some other setups, but it's always interesting how the big fish are trading complex strats.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/