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Morning Update


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. 

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