Options Traders Go All In Heading Into Election
Note: This post was written by Brian Stutland, President of Stutland Equities and a contributor to CNBC's "Options Action."
Yesterday it appeared as though the market got a "Romney bump" and at least one options trader believes the market's rally will follow through into the election.
We saw someone buy 56,650 PowerShares QQQ TrustNov. 71 calls for $0.68 and 45,000 QQQ Nov. 72 calls for $0.39. The breakeven at expiration of this bullish bet is 71.99, which is 3.8% higher than yesterday's close.
The underlying thesis for this trade could be that a tighter election race where Romney has a good chance of winning will be good for markets as they try to price in the chance of a Republican victory.
When the broad market rallies tech has typically outperformed, which makes the NASDAQ 100 ETF a logical choice for traders expecting a rally. Buying out of the money calls is a great way to participate in a rally without a huge outlay of cash, but in the event the market does not move high enough all of the premium paid for the options can be lost.
We have exposure to technology and I couldn't agree more with the institutional trader buying these calls.
Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."
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