QQQ Options Trader Diverges From the Pack, Bets on 25% Rally

Despite recent weakness, the tech ETF is up 24.5% YoY

Aug 3, 2017 at 1:35 PM
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The Dow Jones Industrial Average (DJIA) has been on a tear recently, with the blue-chip index pacing for an eighth straight win. As such, the Dow has been leaving the Nasdaq Composite (COMP) in the dust, with the tech-focused PowerShares QQQ Trust ETF (QQQ) dropping 0.5% during the DJIA streak. Maybe not surprisingly, this weakness has corresponded with an unusual appetite for bearish bets from QQQ options traders. 

Specifically, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 2.04 for the exchange-traded fund (ETF), which tops nearly three-fourths of similar readings from the past year. This indicates put buying has been more popular than normal, relative to call buying.

Moreover, QQQ has a Schaeffer's put/call open interest ratio (SOIR) of 2.67 -- an annual high. Put differently, options traders targeting options expiring within three months are more put-skewed than at any point in the past year. Overall, put open interest on the tech ETF ranks in the 96th annual percentile, with 5.2 million contracts in residence. For reference, put open interest peaked at a 52-week high of 5.8 million back on July 21. 

In today's trading, however, it looks like at least one speculator is anticipating a major tech rebound in the coming months. Specifically, a block of 20,000 March 2018 180-strike calls were seemingly bought to open earlier for 3 cents apiece -- or $60,000 total (contracts purchased * price paid for each * 100 shares per contract). While this isn't an earth-shattering bet based on the money risked, it is notable in the sense it's calling for a more than 25% rally in the PowerShares QQQ before the contracts expire in March. 

Despite its recent weakness, QQQ has been strong over the long haul, thanks to the tech sector's outperformance. The ETF hit a record high of $145.96 on July 27, and remains 24.5% higher year-over-year. 

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