QQQ Year-End Rally
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Powershares QQQ (QQQ) powered higher Friday on the impressive rally set off by the jobs data. Shares sold off a bit leading up to the print on concerns a strong report would increase the odds of a December taper from the Federal Reserve, but shares exploded higher on the news in an apparent "sell the news, buy the fact" type reaction (usually it's the other way around).
QQQ is up $0.25 to $86.25 this morning and trading at its best levels in more than 13 years. On the options front, a few noteworthy block trades in QQQ options on the heels of the report seemed to be expressing confidence that the strength will continue through year end.
The largest trade in the Qs Friday was a 35,000-lot of February 88 calls for $1.11 per contact. According to a source on the exchange floor, the calls were part of a larger purchase of 41,500 contracts. Today's open interest numbers confirm that a new position was opened and the activity seems to be expressing the view that QQQ could rally towards $90 per share by mid-February. At that price of $1.11, the Feb 88 calls have an upside breakeven of $89.11 per QQQ share at the expiration.
Separately, a sizeable risk-reversal traded on QQQ Friday. In this trade, the investor was selling 25,000 December 83 puts on the Qs at $0.24 and buying 25,000 December 87 calls for $0.36. The combo also appears to be targeting a short-term rally in QQQ. December options expire in 11 days and the Dec 83 - 87 risk-reversal, for $0.12, has an upside breakeven at $87.12.
A third 'smart money' play on QQQ Friday also seems to be expressing a bullish short-term view for NASDAQ stocks. An investor bought a Jan 89 - 91 - 93 call butterfly spread on the ETF for 18 cents, 10000X. The investor bought 10,000 Jan 89 calls, sold 20,000 Jan 91 calls, and bought 10,000 Jan 93 calls (or bought the Jan 89 - 91 call spread and sold the Jan 91 - 93 call spread, 10000X) and was opening a new position. If so, the call fly is expressing the view that shares could move up to $91 by the January 2014 expiration.
Powershares QQQ is a popular exchange traded fund that holds the 100 largest companies from the NASDAQ Stock Market (excluding financial names). Large cap tech companies dominate the ETF. Shares are up 28.5% year-to-date and implied volatility in the ETF, as measured by QQV Index, is just 13.25. Overall, investor sentiment seems relatively upbeat and the bullish options order flow on the heels of Friday's strong job numbers seems to be reflecting expectations for year end strength for the Qs in 2013.
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