QQQ Put Volume Pops as Tech Stocks Retreat – Schaeffers Research

Tech stocks have had a blowout year, as evidenced by the price action in the PowerShares QQQ Trust (QQQ). Heading into today’s trading, the shares were up 30.4%, and topped out at a record high of $154.54 yesterday. Today, the overbought fund — whose 14-day Relative Strength Index (RSI) closed last night at 76 — is down 1.2% at $152.57 as the broader stock market sells off on concerns over Senate Republicans’ tax proposal, and options traders appear to be bracing for even bigger losses.

With just around hours left in today’s trading, nearly 508,000 puts and 204,000 calls have changed hands on QQQ — 1.6 times what’s typically seen at this point in the session, and total options volume is pacing in the 94th annual percentile. A healthy portion of the activity has centered at the January 2018 136-strike and June 140 puts, where roughly 85,000 contracts have been exchanged. Most of this likely a result of a bearish roll up and out, but may also be tied to stock, according to Trade-Alert.

More clear-cut action appears to be occurring in the weekly 11/10 series, with speculators possibly buying to open the 152- and 153-strike puts to bet on more downside through expiration at tomorrow’s close. Option bulls, meanwhile, may be purchasing new positions at the weekly 11/10 153.50-strike call to bet on a quick bounce.

Widening the sentiment scope reveals options traders have shown a preference for long puts over calls in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 459,599 puts in the past 10 days, compared to 225,259 calls.

Drilling down on the front-month series, heavy put open interest is found at several underfoot strikes. Specifically, there are 66,530 contracts collectively outstanding at the QQQ November 151, 151.50, 152, and 152.50 puts, while almost 54,000 contracts reside at the 150 put. This could create options-related support for the tech shares in the near term, as the hedges related to these bets unwind ahead of next Friday’s expiration.

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