Traders Were Bidding Up Protection in Nasdaq ETF Ahead of Rout
Traders Were Bidding Up Protection in Nasdaq ETF Ahead of Rout
(Bloomberg) -- For all the talk of whales, froth and call option mania, one prudent group of tech investors loaded up on protection ahead of the selloff.
Last week, the number of outstanding bearish contracts on the $137 billion Invesco QQQ Trust ETF was near the highest in two years. A similar demand for protection played out in the Nasdaq 100 Index, where put open interest has been rising at a faster clip than for calls.
The data is a glimpse into the tech rally that’s largely been a characterized as a one-way wave of bullish options bets by day traders and large institutions such as SoftBank Group. The high level of puts suggests that there are plenty of investors who are skittish about tech valuations and future volatility.
“There is less complacency than meets the eye,” Michael Purves, chief executive officer of Tallbacken Capital Advisors LLC, wrote in a note on Monday.
In the options market, more puts or calls outstanding doesn’t necessarily imply a directional bet since contracts can be bought or sold. Analysts often combine the information with other data points, such as pricing or market commentary, to get a clearer picture of the market.
Still, another sign that points to tech traders demanding more protection is a significant increase in prices for deep out-of-the-money puts, according to Stuart Kaiser, head of equity derivatives research at UBS Group AG.
The Nasdaq 100 dropped for a third session on Tuesday, reaching the lowest in two weeks as investors pulled out of stocks that had rallied the most. Tesla Inc. shares plummeted 14% after the company was skipped for inclusion in the S&P 500 Index.
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