We've been noodling around in the QQQs in recent weeks for two reasons. The first is to make money at it; the second, to gain a better feel for the way the puts and calls behave in this very heavily traded vehicle. Our approach usually begins by plugging in some numbers on the Options Calculator, based on the underlying vehicle trading at a targeted swing point. Typically, we try to buy out-of-the-money puts at projected rally peaks, and calls at swing lows. The calculator pictured below is what I use and recommend, a $99 item from The Option Strategist, Larry McMillan. It shows how much the Feb 42 calls should sell for if the QQQs are trading at 42.14. The figure it gives is 0.70, which is exactly where they closed. (Click on image to enlarge) Actually, 0.70 was where they were going to close, until some wise guy paid a nickel more for them just as the final bell sounded. Why was he so eager to pay up? Well, a likely reason is that the guy owns a bunch of them and they will be marked-to-market overnight. Let me explain by way of an example. If you were going to hold a thousand Feb 42 calls overnight, would you rather they be valued at 0.70, or at 0.75? The answer is obvious. Having them valued at the higher number is the same as having an additional $5,000 in your account. And if you hold other securities on margin and are paying interest on them, the extra $5,000 will help reduce this expense. That is one reason why floor traders jockey the marks around in the final moments of the day. Outsmarting the Computer The foregoing is intended to show that options prices sometimes fluctuate for reasons that have little
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