The PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech-heavy Nasdaq-100 Index, is up more than 25% year-to-date. That is one of the benefits for QQQ when technology is the best-performing sector in the U.S.
While stocks such as Apple (NASDAQ: AAPL), Google parent Alphabet Inc. (NASDAQ: GOOG), Facebook Inc. (NASDAQ: FB) and Microsoft Corp. (NASDAQ: MSFT) are surging, some investors are becoming concerned about the technology sector’s valuations and are departing the corresponding ETFs as a result.
Options data suggest some traders have recently been preparing for a possible decline in the Nasdaq-100 with the ProShares UltraShort QQQ (NYSEARCA: QID). QID attempts to provide double the daily inverse returns of the Nasdaq-100 Index.
“This Short ProShares ETF seeks a return that is -2x the return of an index or other benchmark (target) for a single day, as measured from one NAV calculation to the next,” according to ProShares. “Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks.”
Related: Tech ETFs Could Soar Again in 2018
With tech stocks surging, QID has been punished this year, but some traders think the leveraged inverse ETF could bounce back.
“Investors are doubling down on bets against U.S. tech shares,” reports Bloomberg. “They’ve pushed the number of options to a one-year high for a leveraged exchange-traded fund that rises when the Nasdaq 100 Index falls, with more than five calls outstanding for each put. While that’s been a losing trade this year — the ETF is down 37 percent as the index tracking companies including Apple Inc. and Microsoft Corp. has surged to a record — investors have put money in the fund, sending the number of its shares outstanding to an all-time high.”
Year-to-date, investors have added $805.5 million to QQQ. Over the past month, the ETF has seen modest inflows of $5.6 million.
For more news and strategy on the Technology market, visit our Technology category.
Tom Lydon’s clients own shares of QQQ, Apple, Facebook and Microsoft.