Invesco QQQ ETF Trade Idea

13-06-2023

The Nasdaq Composite posted its worst day since April 25, falling 1.75% to close at 14,303.29 points. The index was weighed down by technology stocks which have lost some steam after a huge gain this year. Amazon retreated more than 4%, while Alphabet (GOOG) and Microsoft slipped more than 3% each. 

The decline could be down to the fact tech stocks have already risen considerably with the Nasdaq posting a gain of >36% YTD. This cooling down in the last week could just be investors taking some profits off the table or a risk off sentiment going into the next week, where we have some significant data releases with the CPI today at 13:30 GMT and a monetary policy update from the Federal Reserve. 

The Nasdaq bounced back and ended last week largely unchanged, but it showed that the rally in the tech sector could be exposed to some downside, especially with such an important piece of economic data just around the corner. Given the amount of uncertainty the economy has already faced this year it’s not surprising to see some caution as we head into some news that could have a very large effect on the economic outlook moving forward.

The Invesco QQQ tracks a modified-market-cap-weighted index of 100 NASDAQ-listed stocks and is a cost-effective way for investors to gain exposure to the Nasdaq. If your portfolio has exposure to the tech sector and you are concerned about a potential price decline, using a put spread on the Invesco QQQ ETF could provide downside protection.

This could be done by buying a put option at a higher strike price to limit your potential losses if we do indeed see a sell off, while also selling a put option at a lower strike price to offset some of the cost.

Alternatively, if you do not hold any exposure to tech and are simply bearish the sector, then you could profit from a down move with your risk limited to the cost of the put spread.