This week the slow and steady market rally we have
experienced this year has slowed even more, although the uptrend is still very
much intact. One option trader is betting that the Nasdaq-100 is at a near term
top at its current levels, and sold 8000 of the QQQ 69 calls expiring on 4/26
against a stock position for $0.91. This buy-write or covered call has a
neutral to bullish bias to the market meaning that it will profit if the QQQ stays
around this level or moves higher. If QQQ is at 69 at expiration the stock
position will breakeven but the option will expire worthless, showing a profit
of $0.91. If the Nasdaq-100 declines then losses on the stock position will be offset
by the $0.91 of premium collected on the options. Lots of traders and investors
are having a hard time seeing how the market will be able to rally
significantly higher from here in the near term and are concerned about the
seasonal “sell in May and go away” trade that could pressure the market. If you
are in this camp then consider a covered call like this. This position is less
risky than a simple long stock position because it will allow you to continue
to profit if the market simply sputters and stalls here and also cushions the
downside if we do see a sell off. The other option is to buy puts, which, even
with volatility near multi-year lows, can be costly. We currently have many of
our clients in strategies like this in order to collect income as we wait for a
clearer indication of what direction the market will take next.
ECB officials said last night that ECB President Mario Draghi will likely wait to hear Germany’s Constitutional Court’s ruling on the EFSM before publicly unveiling his plans. Many were hoping Draghi would unveil his plan after the ECB’s September 6th meeting, but this is becoming increasingly unlikely. Today Reuters is reporting that Germany is the latest European nation to begin studying the possible impact of a Greek exit from the Euro. This comes ahead of Chancellor Merkel’s meeting with Greece’s Prime Minister today. Merkel has repeatedly said that she would like Greece to remain in the common currency, though clearly someone in Germany believes a Greek exit is possible outcome worth preparing for. This morning US new durable goods orders numbers we released for July, coming in at a gain of 4.2% M/M. Though this was strong than expected, it was primarily driven by strong aircraft sales. Non-defense orders excluding aircraft were down a sharp 3.4% M/M versus a 0.2% decline expecte...
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