Why You Should Care About This $626,000 QQQ Trade That Hit Yesterday

The QQQ has out performed the SPY by a wide margin.  

Year to date, the QQQ ‘s return is about +47%.  

The SPY year to date total return is about +15% (total return is actually closer to 17%).

But the spread ebbs and flows. 

With the QQQ’s return expanding and contracting over the SPY as money flow moves between the two ETFs.

Right now we are at one of the wider points of that spread:

The widest spread through December took place on September 2nd and was just over 31 points (Check out that yellow arrow).

At that point as you can see on the chart, both indexes sold off,  but the QQQ sold off much faster than SPY.

The QQQ is in red, by the way.

On the right side of the chart, you’ll see we’ve reached a wide spread between the QQQ + the SPY yet again.

In fact, we are actually over a 32 point spread between the two ETFs.

The unprecedented levels of the QQQ means that I am not entirely shocked one of the biggest trades of the day yesterday was a bear QQQ put spread.

Here was the exact trade.

This trader bought the QQQ April 283 puts and sold the 265 puts paying less than $3.00 a spread.

This is probably not an out right play based on the size and style of the trade.

Instead it is almost certainly a hedge set up to protect a long portfolio against a precipitous drop in the QQQ.

The trader is basically saying… if the QQQ takes a fall, I want protection below 280 (about a 10% drop),  and will happily buy it back below 265 (a 15% drop).

He or she is more likely to dump out of the spread before that happens as this spread dates out to April.

The spread is long 600,000 vega and short skew. 

This means they want the VXN (the VIX of the QQQ) to go up and the skew to flatten (the IV relationship between near the money options and out of the money options).

At a cost of less than 3 bucks the hedge only costs less than 1% of the value of the ETF,  thus in dollar terms it’s cheap.

Based on the price action of the QQQ and the VXN today (the QQQ was up SO was the VXN always a bearish sign)  I get why the trader would do this.

MOST IMPORTANTLY… It’s critical to notice that this trader decided to place this trade in the QQQ instead of the SPY, which mirrors a similar pattern.


Because it points toward a concentrated sell off in tech.

I have been advocating for rolling out of QQQ and SPY and into RSP for this exact reason.

Heading into 2021,  I think a lot of traders and investors have work to do on their portfolios, which is one of the main topics Frank Gregory and I will be covering today at 12 EST in our webinar.

Join here if you haven’t… this is your LAST CHANCE. 

Your Only Option,

Mark Sebastian

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