QQQ at Record Highs Spurs Appetite for Protective Puts

PowerShares QQQ Trust (QQQ) topped out at a record high today amid a broader surge in tech shares

Feb 15, 2017 at 2:18 PM
facebook X logo linkedin

It's another record-setting day on Wall Street. Similar to its base index, the Nasdaq-100 Index (NDX), the PowerShares QQQ Trust (NASDAQ:QQQ) has carved out a fresh all-time peak of its own. Specifically, QQQ shares hit a record high of $129.10 earlier, and were last seen trading 0.4% higher at $129.03 -- on track to notch a ninth straight daily win, along with this fellow tech-heavy exchange-traded fund (ETF). Nevertheless, put volume is accelerated today, with one speculator in particular seemingly betting on a near-term retreat for QQQ.

QQQ Targeted for a Long Put Spread

By the numbers, 211,296 QQQ puts have changed hands so far -- 1.4 times the average intraday pace -- compared to 95,623 calls. The resultant intraday put/call volume ratio is docked at 2.21, and on track to settle in the 94th annual percentile. As a point of comparison, QQQ's single-session put/call volume ratio topped out at a 12-month high of 3.42 on Feb. 6.

Diving deeper, the ETFs March 124 and 127 puts have seen the most action. It looks as if one trader may have bought to open 10,000 of the higher-strike puts and lowered her cost of entry by selling to open a similarly sized block of the lower-strike puts. If this is the case, she paid $620,000 (number of contracts * $0.62 net debit * 100 shares per contract) per each long put spread, with breakeven located at $126.38 (bought strike less net debit paid).

Heavy Put Buying on QQQ Shares Could Signal Hedging

This apparent bearish bias toward QQQ just echoes the recent trend seen in the options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 279,349 QQQ puts in the last two weeks, versus 138,994 calls. The corresponding 10-day put/call volume ratio of 2.01 ranks in the 87th percentile of its annual range, meaning puts have been bought to open over calls at a faster-than-usual clip.

Additionally, QQQ's Schaeffer's put/call open interest ratio (SOIR) is docked at a top-heavy 2.18, and is ranked higher than 81% of all comparable readings taken in the past year. In other words, short-term speculators are more put-heavy than usual toward the shares.

Given the ETF's impressive technical run -- QQQ is boasting a nine-month lead of nearly 21% -- it's likely that some of the recent put activity, including today's, is a result of traders protecting paper profits against a broader retreat in tech shares. With PowerShares QQQ Trust's (NASDAQ:QQQ) 14-day Relative Strength Index (RSI) perched comfortably in overbought territory at 81.9, its loftiest perch since July 2014, a short-term pullback could certainly be in the cards.

Stay in the loop with stocks on the move. Sign up now for Schaeffer's Midday Market Check.


How to collect 1 dividend check every day for LIFE

Did you know you could collect 1 dividend check every day the market is open? You could also do it starting with just $605! For me, I'm collecting 70 dividend checks every quarter…which averages around 1.1 dividend checks every business day. There's no trading behind this... no penny stocks or high-risk investments. All you do is buy and hold and you're set. There's no set up required either. If you start buying the dividend stocks I show you today... you could collect 1 dividend per day starting as early as this week. Click here for all the details.