QuickNote 6/18/14 – NQ Option Expiration
A quick thought on NQ Mobile (NYSE: NQ) : plenty of funds are betting that the auditors resign – and fast. Looking at the June 21 options – they expire in 3 days – there are 53,000 June 6 puts outstanding. There are also 24,000 of the 7 puts; that’s a total of approx. 77,000 (representing 7.7 million shares).
On the call side, there are 14,000 8 & 9 calls, plus 12,000 10 calls. You don’t need to know the greeks to see that there is a large bias to the short side.
As Friday expiration gets closer, those market makers who have hedged out these contracts have to close out the positions. What that means is that there is a natural net buyer given the tilt towards the puts – provided of course that there is no bad news to come out in the next three days.
To me, taking the other side is a great bet to make. I am a buyer of common stock right here and will sell it over time into Friday afternoon. In other words, I’m a renter of the stock and will sell it to the natural buyers when they come to market.
No guarantee here. The owners of these puts believe something bad happens this week. I think the odds that we hear something negative about the ongoing audit in under 72 hours is remote. I’ve seen these risk/reward setups dozens of times and I’m fixing the odds at 70% that the trade pays off.