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Get Long Volatility in the Nasdaq 100

Due to weakness in Apple, the Nasdaq index has not bee participating with this move higher.

On top of that relative weakness, the range since the beginning of the year has been tiny-- only 2% over the past few weeks:

qqq-daily

With this tight of a range, a volatility expansion is just around the corner. Couple that with AAPL earnings risk tonight, and the Nasdaq is primed for a decent move.

But what are the options pricing in?

You can look at VXN, which is the VIX for NDX options. NDX, for those of you who don't know, is the cash settled index options for the Nasdaq, similar to the SPX.

vxn-daily

Just like all the other volatility indexes, the options premium is in the gutter.

Should the options be priced this low? Probably not. AAPL, the largest component of the Nasdaq, is one of the main reasons this index can't find any footing.

And we can look at the VIX for AAPL -- VXAPL:

vxapl

Because of the weakness and with earnings tonight, the implied volatility is near the top of its yearly range.

So AAPL options are plenty primed, but QQQ options are in the gutter.

If you think AAPL will see a violent move, then the QQQ will also see a violent move. And if the IV is in the gutter for QQQ options, then this is a good time to buy volatility.

Let's take an example: the Feb 67 straddle.

qqq-straddle

This is a bullish volatility bet that makes money if QQQ either breaks out or breaks down. It is currently going for a price of 1.87-- meaning you need to see a little over 2 bucks of price action to justify getting long this trade.

The YTD range for the QQQ is around 1.30. If you expect more of the same, then you should take the other side of this trade. But with AAPL earnings risk right around the corner, any expansion in volatility will prove profitable for this trade.

 

by Steven Place

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