Bolstered by an ongoing biotechnology rally and surges by Amazon (NasdaqGS: AMZN) and Facebook (NasdaqGS: FB), the PowerShares QQQ (NasdaqGM: QQQ), the Nasdaq-100 (NDQ) tracking ETF, is up more than 7% year-to-date and hit another all-time Thursday.
Even with those bullish data points in its favor, QQQ’s bearish options, or puts, are far pricier than bullish call options.
“Options protecting against a 10 percent decline in the tech ETF’s shares cost 9.8 points more than those betting on a similar climb, according to data compiled by Bloomberg. The relationship between the implied volatilities known as skew reached 10.4 on July 9, the highest since June 2012,” report Callie Bost and Annelise Alexander for Bloomberg.
Traders are speculating that slack consumer demand in China could crimp profits for QQQ constituents such as Qualcomm (NasdaqGS: QCOM) and Nvidia (NasdaqGS: NVDA), according to Bloomberg. Those stocks combine for just 2.2% of QQQ’s weight.
Bearish bets on QQQ are also indirect bearish wagers on the continuing ascent of the biotechnology industry. Healthcare is QQQ’s third-largest sector at almost 16%. Of QQQ’s 14 healthcare holdings, eight or biotech or specialty pharmaceuticals firms.
The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB) is up more than 30% this year. That ETF tracks the NASDAQ Biotech Index, a benchmark that is home to the eight biotech stocks that also reside in QQQ, including Celgene (NasdaqGS: CELG) and Gilead Sciences (NasdaqGS: GILD).
Apple (NasdaqGS: AAPL), QQQ’s largest holding at a weight of almost 14%, is up 16% year-to-date, but recent surges by Amazon and Facebook are driving investors to the ETF. Although QQQ surged 19.2% last year, easily topping the S&P 500, investors pulled more than $11 billion from the fund. Aided by the soaring shares of Amazon and Facebook, QQQ has taken in nearly $570 million in new investments over the past 30 days, according to PowerShares data. That is more than five times as much as the next closest PowerShares ETF.
Betting against QQQ is also a bet against cash-rich companies. Four of the five U.S. companies with the largest cash stockpiles at the end of 2014 were Nasdaq-listed firms: Apple, Microsoft (NasdaqGS: MSFT), Google (NasdaqGM: GOOGL) and Cisco (NasdaqGM: CSCO). Those stocks combine for nearly 31% of QQQ’s weight. [ETFs for Cash-Rich Companies]
Powershares QQQ
Tom Lydon’s clients own shares of Apple, Cisco, Facebook, Google, Microsoft and QQQ.