Regular readers are aware of the fact that I fund the concentration of the weighting of a handful of stocks in the Nasdaq 100 make the QQQ, the etf that tracks the index a fairly interesting trading vehicle. From a post last week (here):
the top five holdings, Apple, Alphabet, Amazon Microsoft and Facebook, make up nearly 40% of the weight of the index of 100 stocks (equaling about $2 trillion in market cap). If you ad those to the next five, Comcast, Intel, Cisco, Gilead & Amgen and the combination is greater than the value of the remaining 90 stocks.
There’s still a good bit of positive investor sentiment tied to some of these NASDAQ leaders but if the broad market re-tests the early Feb lows, few stocks or sectors will be spared and stocks that have already broken like AMZN and AAPL and stocks that have had sharp breaks followed by snap backs like FB and GOOGL could all be equally vulnerable.
The Nasdaq 100 is one of the only large cap equity indices in the world above its August 2015 lows. Aside from the flash-crash on August 24th it’s never meaningfully tested its October 2014 Ebola low, and appears to be holding on for dear life above the uptrend that has been in place from its 2009 lows:
The six month chart of the QQQ shows the etf’s pause just below its 50 day moving average, its prior high from earlier in the month at $105:
Options Action:
Shortly after the open there was a bearish roll in the QQQ. When the etf was trading $103.55 a trader sold to close 10,000 of the March 31st 101 puts at $1.77 and bought to open 20,000 March 31st 97 puts for 89 each. Doing some quick math, you see that excluding commission, the trade was essentially done for zero cost (10,000 puts sold to close at 1.77 = $1.77 million vs 20,000 puts bough to open for .89 = $1.78 million). This kind of activity suggests that an investor is likely rolling down a hedge.