QQQ Put Activity Soars Before Apple Earnings
11 minutes ago - Dow Jones News
--Options traders snapped up protection amid fears Apple would take a bigger bite out of QQQ
--QQQ options activity is heavy in contracts protecting against a 7.5% drop into mid-May
--After ETF crashed through 50-day moving average, investors bet on a new $65 ceiling
By Kaitlyn Kiernan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Bearish sentiment in options on an exchange-traded fund tracking the technology-heavy Nasdaq 100 surged Tuesday amid fear Apple Inc. (AAPL) will continue to pull the index lower.
Trading activity in PowerShares QQQ's (QQQ) ETF skewed in favor of put options, as investors braced for volatility following Apple quarterly earnings Tuesday afternoon. Trading in puts outpaced calls by a rate of 2.84 to 1, the highest level in nearly five months, after starting the day as high as 5.8 to 1.
Put options convey the right to sell shares at a set price by a specified date. Call options convey the right to buy.
The protective positioning in the options market came as the QQQ ETF slipped for the seventh time in eight days on Tuesday, hurt by major declines in the Nasdaq 100's largest component, Apple, over the past two weeks. QQQ extended losses to 3.7% over the period, dropping 35 cents, or 0.5%, to $64.73 on Tuesday, while Apple fell $11.42, or 2%, to $560.28.
Apple, which accounted for 18.1% of QQQ's weight at the time of its most recent filing, pulled the ETF higher on its meteoric rise to start the year. That helped push the ETF up 22%, to an 11-year high at the beginning of this month, as the technology firm surged as much as 57%. However, as Apple has slipped, so too has QQQ.
"The QQQ and the [Nasdaq 100] are really overweight Apple, and we should really just call it the Apple+99 Index," said Mark Sebastian, chief operating officer at OptionPit. "The S&P 500 and the [Nasdaq 100] basically moved in tandem this year up until this Apple train wreck started. Now the S&P is acting like an index should, and Nasdaq is acting like Apple."
As Apple prepared to announce its second-quarter results, options traders sought to protect against another blow to QQQ, with the most actively traded contract a put option that protects against a 7.5% drop in the ETF though mid-May.
One of the day's top trades involved the purchase of 71,000 May $60 puts for 24 cents per contract in a purchase that was likely intended to hedge a portfolio of 7.1 million shares of the ETF.
Meanwhile, in call activity, action in weekly $65 contracts jumped as investors looked to trade based on technical levels, according to Randy Frederick, director of trading and derivatives at Charles Schwab.
Weekly $65 calls, which expire Friday, traded more than 31,000 times, with the largest block of the options, nearly 4,000 contracts, sold in a bet the ETF will be unable to break back above $65 by the end of the week.