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Wednesday, August 03, 2005

Strange options prices

QQQQ (Nasdaq 100 index tracker) Aug $40 options calls are trading at $0.80/$0.85 and puts are trading at $0.70/$0.75. What makes it strange, is QQQQ price. QQQQ is trading below $40 ($39.50$39.95). Puts should be more expensive than calls in this situation, does everyone see the market in too positive light (and too less fear for correction)? If so, it might go just the opposite way than the market expects.

Update (August 3, 2005 11:56 AM):
In reply to the comments I'll add a chart to show some warning signs:


I am definitely not saying that QQQQ will go down (I would buy puts myself, if I was so sure), just pointing out that the rise is not so easycoming as the market predicts (according to the prices of QQQQ Aug $40 calls and puts).

Correction (August 3, 2005 12:34 AM):
Of course, QQQQ was trading at $39.95, not $39.50 as I wrote. Sorry for the typo!

9 Comments:

Blogger laderamike said...

I've been watching this one pretty closely, too. The NASD market forecast shows it to be overbought, with intermediate, short term, and momentum indicators in an extreme range.

I've actually been waiting for an opportunity to buy puts on the QQQQ's. It's due for at least a slight correction (if not a major one).

8/03/2005 10:45:00 AM  
Blogger Ram said...

I'm an Economics major, so here's my two cents on the macro (and long term) situation.

We've been stuck in this range ever since the rebounce after 9/11. (Talking about the global market, not just DJI or Nasdaq.) News have been bad, and we got used to all of them. Remember the market closed green when the first bombing in London happened? That's how well absorbed the negatives are. We have even factored in record-high energy prices earlier this year.

The recent surge of Nasdaq suggests that it may be about time for us to finally move on at a decent pace, when all these tech stocks are actually beginning to make money (unlike the dot-com bubbles a few years ago). I'm too young to have the experience during the Clinton years, but the market has not been performing in the last few years. That's unusual when you look at the big picture:

http://finance.yahoo.com/q/bc?s=%5EDJI&t=my&l=on&z=l&q=l&c=

Also, earnings have been predominately good lately. Perhaps that's why the optimism.

8/03/2005 11:11:00 AM  
Blogger Online Trading said...

ram, nice thoughts and you may be damn right, but the perspective (time frame) is really different.

QQQQ Aug options will expire in 2 weeks. This is way too soon to have any impact by global recovery. I don't question your arguments, I am just pointing out that your macro overview doesn't explain the current situation with QQQQ options anomaly.

Currently, QQQQ is trading at $39.98, calls $.8/.9 and puts $.7/.75.

8/03/2005 11:31:00 AM  
Blogger Ram said...

So people are expecting QQQQ (or Nasdaq as a similar matter) to go up another quarter percent or better within this two weeks.

Consider QQQQ's recent movement, that's a rational prediction (albeit rather bullish):

8/03/2005 11:42:00 AM  
Blogger Ram said...

QQQQ has been doing quite alright technically speaking

8/03/2005 11:44:00 AM  
Blogger Online Trading said...

ram, I agree, QQQQ may go up, but I watch it precautiously.

Usually, if everyone is so sure of something, it will go otherwise.

Another thing, what makes me worrying, is the implied volatility of QQQQ. That's very low at the moment, meaning that there is no fear on the market. Often, these situations spot market highs.

8/03/2005 12:10:00 PM  
Blogger Online Trading said...

PS, I added a chart and some comments in the post.

8/03/2005 12:14:00 PM  
Anonymous Rogueman said...

guys, you may wanna consider that calls carry interest and puts.(?).

10/12/2006 01:42:00 PM  
Anonymous PENNY STOCKS said...

Options I can do without them.

12/03/2012 02:44:00 PM  

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