How Will You Trade Nasdaq 100 Changes?
Published on December 15, 2010
Published on December 15, 2010
Nasdaq 100 index (NDX) will be replacing seven companies next week and the winners are Netflix (NFLX), Whole Foods Market Inc. (WFMI) and 5 more. Usually changes to the index can move stocks up or down as index funds that track its benchmark’s performance will have to buy shares of new companies that join the index and sell share of those being dropped. That is theoretically true but keep in mind that this is an information that’s known to everyone; so can you really benefit from this?
Here is the original annoucement–
NEW YORK, Dec. 10, 2010 (GLOBE NEWSWIRE) — The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) announced today the results of the annual re-ranking of the NASDAQ-100 Index® (Nasdaq:NDX), which will become effective prior to market open on Monday, December 20, 2010.
“The NASDAQ-100 Index is increasingly accepted as one of the world’s most globally recognized benchmarks, the basis of more than 2200 structured products and 22 exchange-traded funds worldwide,” said NASDAQ OMX Executive Vice President John L. Jacobs. “This re-ranking ensures the NASDAQ-100 Index’s relevance as a global benchmark comprised of the world’s most innovative large-cap growth companies that are recognized leaders across a broad range of industries.”
The following seven securities will be added to the Index: Akamai Technologies, Inc. (Nasdaq:AKAM), Ctrip.com International, Ltd. (Nasdaq:CTRP), Dollar Tree, Inc. (Nasdaq:DLTR), F5 Networks, Inc. (Nasdaq:FFIV), Micron Technology, Inc. (Nasdaq:MU), Netflix, Inc. (Nasdaq:NFLX), and Whole Foods Market, Inc. (Nasdaq:WFMI).
The NASDAQ-100 Index is composed of the 100 largest non-financial stocks listed on The NASDAQ Stock Market® and dates to January 1985 when it was launched along with the NASDAQ Financial-100 Index®, which is comprised of the 100 largest financial stocks on NASDAQ®. These indexes act as benchmarks for financial products such as options, futures, and funds. The NASDAQ-100 is re-ranked each year in December, timed to coincide with the quadruple witch expiration Friday of the quarter.
On a cumulative price return basis, the NASDAQ-100 Index has returned 1594% since inception, although past performance is not indicative of future performance.
The NASDAQ-100 Index is the basis of the PowerShares QQQ Trust (Nasdaq:QQQQ) which aims to provide investment results that, before expenses, correspond with the NASDAQ-100 Index performance. In addition, options, futures and structured products based on the NASDAQ-100 Index and the PowerShares QQQ Trust trade on various exchanges.
As a result of the re-ranking, the following seven securities will be removed from the Index:
Cintas Corporation (Nasdaq:CTAS), DISH Network Corporation (Nasdaq:DISH), Foster Wheeler AG (Nasdaq:FWLT), Hologic, Inc. (Nasdaq:HOLX), J.B. Hunt Transport Services, Inc. (Nasdaq:JBHT), Logitech International S.A. (Nasdaq:LOGI), and Patterson Companies, Inc. (Nasdaq:PDCO).
The changes will take place on Dec 20th, the Monday. So How do you trade such an event? Conventional wisdom is to play via Straight calls on those companies that are being added and Straight puts on the ones being deleted. Let’s get some ideas from the readers on how would you play this upcoming event? pls leave your thoughts in the comments sections. I shall be sharing my thoughts by Friday.
Profitable Trading, OP