Two Well-Timed Nasdaq-100 Collars From Last Week

The first week of 2022 kicked off with calm before a storm caused by the FOMC minutes coming out Wednesday and pushing stock prices lower. Before the majority of last week’s weakness a couple of traders put on collars around NDX focused portfolios. Here’s a quick breakdown of how both worked out quite well.

Early Wednesday with the NDX at 16,212.17 a trader came in selling an out of money call and purchasing an out of the money put, possibly to collar exposure. The specific trade sold the NDX Sep 16th 16500 Calls for 1097.70 then buying the NDX Sep 16th 15750 Puts for 1081.40 and a net credit of 16.30 per spread. The payoff below shows delta one NDX performance, the option trade at expiration, and the combined payout as a collar.

As noted, this is a tight collar with only 1.88% of potential upside and hedged against anything greater than a drop of 2.75%. Do note the time of the trade was early Wednesday, before FOMC minutes and the equity markets selling off in response. A rough estimate, based on NDX option closing prices on Friday has this trade at a profit of slightly over 500 points per spread. Calling this collar well timed is an understatement.

In the XND arena, we saw a hedging trade put on before the markets experienced weakness and then rolled down and out after the markets came under pressure. The first trade occurred midday on Monday Jan 3 with XND at 164.36 and was a collar. The specific trade sold 50 XND Jan 28th 172.50 Calls for 0.20 and purchased 50 XND Jan 28th 149.00 Puts for 0.35 for a net cost of 0.15. Part two occurred on Friday afternoon when the owner of the 50 XND Jan 28th 149.00 Puts sold that part of the collar for 1.34, netting a profit of 0.99 on the put leg. This trader appears to believe there is more downside coming for XND as they purchased 50 XND Feb 18th 143.00 Puts for 1.56. The chart below is a 5 minute chart showing XND price action last week along with highlighting when the collar and then the rolling transaction took place.

XND 5 minute chart

As of the close on Jan 7 the call side of the original collar is still open. I’ll be keeping a close eye on both the Jan 28th 172.50 calls and Feb 18th 143.00 puts to see if there’s any more rolling or profit taking associated with this trade.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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