QQQ: Profit From Apple Inc.’s Failure (AAPL)

Tech lovers beware. The generals are being taken out and shot one by one. And the Nasdaq is suffering under the onslaught. First it was Netflix, Inc. (NFLX), then Microsoft Corporation (MSFT) and Alphabet Inc (GOOGGOOGL) bit the dust. And today Apple Inc. (AAPL), the biggest of them all, was brought low.

The relentless barrage of bullets has taken the PowerShares QQQ Trust, Series 1 (ETF) (QQQ) below support.

Following one of its worst earnings announcements in years, AAPL is down 7% in early morning trading. The tech-heavy QQQ is exhibiting some serious relative weakness here. Today it’s down 1.5% while the rest of the indices are virtually unchanged.

And it’s not just a one day phenomenon, mind you. QQQ has been mired in weakness for a week.

QQQ
Click to Enlarge
Source: OptionsAnalytix

With today’s shellacking, this Nasdaq-100 exchange-traded fund is now below all its major moving averages. Buyers had best right the ship quickly here, or things are going to get ugly in tech land.

Adding further concern to the deterioration is the pair of distribution days cropping up in QQQ recently. And I suspect today’s swoon may well tack on a third one.

If the big boys are stepping out of tech, the selling pressure will linger.

QQQ Put Spreads for Protection

Though the nascent weakness has driven demand for QQQ options higher, implied volatility levels still remain relatively low. If you think tech stocks continue plumbing the depths, now is as good a time as any to snatch up put options.

To cut the overall cost, use put spreads. Buy the QQQ July $106/$100 put spread for $1.65 or better. The position consists of buying to open the July 106 put while selling the July 100 put.

The max risk is limited to the initial $1.65 debit and will be lost if the ETF sits above $106 at expiration. The max reward is limited to the distance between strikes minus the net debit, or $4.35, and will be captured if QQQ falls below $100 by expiration.

By risking $1.65 to potentially capture $4.35 the put spread offers a scorching 263% return.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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