The Nasdaq Composite (IXIX) is at record highs today -- on track for its best day of the year -- as Wall Street reacts to strong tech earnings from such heavyweights as Alphabet (GOOGL), Amazon (AMZN), and Microsoft (MSFT). Against this backdrop, the PowerShares QQQ Trust (QQQ) and the Technology Select Sector SPDR Fund (ELK) are carving out new highs, as well, and options traders are blasting the tech-heavy exchange-traded funds (ETFs).
QQQ was last seen up 2.4% at $150.52, fresh off a record high $151.13. This is just more of the same for the shares, too, which are boasting a nearly 28% year-over-year advance, and have added 3.6% in October alone.
QQQ options volume is surging, too, with over a million contracts traded -- nearly three times what's typically seen at this point in the day, and pacing in the 99th annual percentile. Most notable is a call ratio backspread where one trader may have sold to open 34,000 weekly 11/3 150-strike calls for $1.24 apiece, while simultaneously buying to open 68,000 (twice as many) weekly 11/3 152-strike calls for $0.35, creating a net credit of roughly $0.54 per spread [$1.24 for sold calls - ($0.35 * 2) for bought calls]. Accounting for 100 shares per contract, this equates to about $1.83 million.
The trader will pocket this initial credit collected, should QQQ shares settle below $150 at expiration at next Friday's close -- a time frame that includes earnings from Apple (AAPL) and Facebook (FB). Profit, meanwhile, is theoretically unlimited on a move north of the upper breakeven rail of $153.46 [(difference between the two strikes) + (higher strike - net credit)], while the speculator will suffer the maximum loss, should QQQ close next week right at $152.
XLK is up 2.6% to trade at $62.51 -- not far from the record high of $62.58 it hit earlier. The ETF has now cleared recent congestion in the $60-$61 region, bringing its year-to-date gain to 29.3%.
Nearly 29,000 XLK options have traded so far -- more than four times the expected intraday pace, and volume is on track to settle in the 95th annual percentile. However, puts are outpacing calls by a roughly 2-to-1 margin. Most of the activity appears tied to stock, as those with exposure to tech stocks seek out an options hedge.
One group of potential vanilla options traders may be buying to open new positions at the December 63 call. If this is the case, the goal is for XLK to break out to even higher highs by the close on Friday, Dec. 15.