The Nasdaq-100 has seen significant profit taking as many investors have trimmed their exposure to the Mag 7. I believe there is more unwinding for the Nasdaq-100, which is tracked by the Invesco QQQ Trust ETF , as we continue to digest all of the "Magnificent Seven" earnings reports. Volatility and carnage in the Nasdaq should persist causing more sellers to sell tech stocks.
Here is an options strategy to profit on this additional plunge in Tech. After printing several recent month lows in several Mag 7 names — Nvidia , Meta Platforms and Alphabet — the tech heavy Nasdaq got off the proverbial mat and attempted a comeback Thursday. However, the move ran out of gas into the closing bell, and the QQQ finished back in the red.
The rotation persisted, as the Russell 2000 and the Dow Industrials both edged higher. The Nasdaq's failed rebound comes after investors endured its worst day in nearly eighteen months on Wednesday. The QQQ's closed down over 3.
5%, while the S & P 500 index closed down over 2 for the first time in almost 400 days. The sell-off was kicked off by Alphabet shaving 5% (post its Q2 earnings report) and then losses accelerated by Tesla, whose shares fell 12.3% for its worst day since 2020.
While earnings may or may not make sense this quarter, it has become apparent that those who have been riding the AI wave higher are itching to take some chips off the table, and rightfully so. Nvidia is still up 130% year to date. How much further can we drop, you ask? I think that current momentum pushes the QQQs down to its 200 day moving average, at $426.
The trade: a put spread Buy the August regular expiration 8/16/2024 $455 put for $7.50 Sell the August regular expiration 8/16/2024 $425 put for $1.65 This is a debit spread that will cost an investor $5.
85 per one lot spread (This trade was executed earlier Friday, when the QQQ was trading around $460) In the event market bulls buy this dip and the Nasdaq-100 returns to rally mode, you have defined your risk and look at the premium paid as just an insurance policy that went unused. And investors do profit in the event the Nasdaq dips further as forecasted here, your profits would be the amount you paid for this spread subtracted from the $30 wide spread. DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium.
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