Market Hedges for 5% Pullback

Tech-heavy Nasdaq and S&P 500 pushed higher on the back of a blowout earnings report from Nvidia that boosted chip stocks and reinforced optimism around the AI boom.

Options flows showed continued defensive put positioning in SPY to hedge for a 5% pullback by July 31 expiration. For QQQ, downside was seen limited to 5.6% by May 31. In small-caps, the Russell 2000 was pricing a 5% decline by July 19.

Details:

The $SPDR S&P 500 ETF Trust(SPY)$ saw open call interest rise 1.2% over the past 5 days. Open put contracts increased 1.3% over the same period.

For call options, the most actively traded was the $SPY 20240523 540.0 CALL$  with a 540 strike, adding 12,000 contracts.

For put options, investors bought the most $SPY 20240731 500.0 PUT$  with a 500 strike, adding 10,000 contracts. This implies expectations for a 5.6% pullback in SPY by July 31 expiration.

The $Invesco QQQ(QQQ)$ saw open call interest rise 3.2% over the past 5 days. Open put contracts increased 4.9% over the same period.

For call options, the most actively traded was the $QQQ 20240523 464.0 CALL$  with a 464 strike, adding 23,000 contracts.

For put options, investors traded the most $QQQ 20240531 430.0 PUT$  with a 430 strike, adding 48,000 contracts. This caps expectations for downside in QQQ below 5.6% by May 31 expiration.

The $iShares Russell 2000 ETF(IWM)$ saw open call interest rise 0.7% over the past 5 days, while open put contracts increased 1.7% over the same period.

For call options, the most actively traded was the $IWM 20240523 210.0 CALL$  with a 210 strike, adding 7,144 contracts.

For put options, there was heavy buying in the $IWM 20240719 196.0 PUT$  with a 196 strike, adding 47,000 contracts. This prices in a 5% decline for IWM by July 19 expiration.