© Reuters.
NEW YORK – Investors are currently engaging in a strategic move by front-running an ETF’s option expiration, contributing to the Nasdaq’s robust performance this November. The Global X Covered Call ETF, which boasts a market value of $7.7 billion and employs a buy-write strategy, is in the spotlight for selling one-month call options on the Nasdaq 100 each month.
The tech-heavy Nasdaq 100 has experienced a notable surge of nearly 10% since late October. This uptick has resulted in the ETF’s short position, set to expire this Friday, being significantly lower than the current level of the index. The disparity has prompted the need for the acquisition of thousands of futures contracts to provide adequate coverage.
Nomura strategist Charlie McElligott highlighted in a note on Friday that this adjustment is anticipated to trigger approximately $8 billion worth of Nasdaq futures purchases as the hedge is lifted. Despite this expectation, Bloomberg data indicates that, as of yet, no futures contracts have been purchased for the ETF. The ETF holds a short position comprising 5,280 contracts of the Nasdaq 100 and 14,600 calls due to expire on Nov. 17.
Historical data suggests that such maneuvers can be profitable. When calls that were at least 105% in the money were unwound in the past, it resulted in an average return of 2% over the subsequent week. This pattern underscores the potential financial impact of strategic options trading and hedging as expiration dates approach.
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