Tech has been on a tear, hitting another all-time high on Friday, but one trader is betting more than $50 million that the rally could be coming to an end over the next twelve months.
Apple, Facebook, Amazon, Microsoft and Alphabet make up 40 percent of the Nasdaq 100 ETF — the QQQ. As those tech heavy hitters continue to soar, they have propelled the ETF up more than 25 percent this year and added a combined market cap of $774 billion.
At least one options trader is skeptical that that momentum could continue.
In one massive eyebrow-raising trade this week, someone bought 76,000 of the January 2019 135-strike puts for $6.60. Since each put option accounts for 100 shares of stock, that is a more than $50 million bet that the QQQ will fall below $128.40 by January 2019 expiration — more than 13 percent lower than Friday’s trading price. A downturn of this magnitude would put the ETF in correction and bear market territory.
“That sort of activity is pretty interesting. That’s some meaty premium [and] long-dated,” RiskReversal.com’s Dan Nathan said Thursday on CNBC’s “Fast Money.”
“This [chart] has a pretty strong base … let’s see what earnings do, if it breaks it out further,” Nathan explained.
According to Nathan, this particular trade could be “a hedge against a long-dated portfolio of some of these major tech stocks.”
The last time the Nasdaq saw such a move and entered correction territory was in early 2016. The index fell 18 percent between December 2015 and February 2016, a month when markets were broadly lower.
The QQQ was trading at the $148.38 range midday Friday.