AI Trade Cracks as QQQ Options Keep Pricing Bigger Swings

The pressures are real, CNBC reported, but options traders have been bracing for bigger swings than the Nasdaq has delivered in recent weeks. QQQ's implied volatility index, or IVx, closed Monday near 20.7%, putting Nasdaq-100 volatility on par with small caps. The Russell 2000 typically carries a higher IVx than the Nasdaq-100, but QQQ and the iShares Russell 2000 ETF are essentially tied near 20.7%, while the SPDR S&P 500 ETF sits at 15%.

For 29 straight sessions, QQQ's IVx has sat at least three points above the volatility the index actually delivered. In other words, every day since the start of September, options have priced in bigger moves than QQQ ended up making, and this week's selling has yet to close that gap. CNBC described that gap as the opportunity.

When the market dips but moves less than options expect, selling premium into the weakness lets traders collect elevated prices while setting strikes below a market that has already come in, according to the article. Spina, the CNBC Pro contributor who wrote the article, said he is selling the November 13 720/710 put spread for a credit of roughly $1.81 based on Monday's close.

The trade is bullish-to-neutral, in line with how QQQ has traded this fall, the article said. Even after this week's dip, QQQ is up about 5% since the start of September and hit a record just a week ago. The trade does not need the pullback to reverse, only to stay contained through November 13, or until it is managed.

It reaches its maximum profit of $181 as long as QQQ stays above $720 through November 13, according to the article. The $720 short put sits below the 50-day moving average, near $726, and the $710 long put sits just below the market's expected move, near $713. With a breakeven of $718.19, about 3.7% below Monday's close, the trade leaves room for a further pullback through earnings season.

The November 13 weekly was chosen to avoid Nvidia's earnings report, expected around November 18, the article said. QQQ's options are liquid enough that its weeklies can be considered for this trade.

The maximum loss of $819 is reached if QQQ closes below $710, roughly 4.8% lower, by expiration. The credit is a bit light, but the article described that as the trade-off for a wider cushion: the trade carries a 70% theoretical probability of profit and an 80% theoretical chance of collecting half the maximum profit.

If QQQ finishes between $710 and $720 at expiration, the short put can be assigned and result in an obligation to buy 100 shares per spread at $720. After the credit, the effective cost basis is $718.19, about 5.5% below the record high. QQQ last closed below $720 on September 17. Because of that exposure, the article suggested considering closing or rolling the trade before expiration rather than holding it into settlement.

The biggest risks are on the calendar: CPI on Wednesday, bank and Taiwan Semiconductor earnings this week, and Microsoft and Alphabet reporting alongside the Fed decision on Oct. 28. The Nasdaq is under pressure, but it has yet to outrun what options are pricing, according to the article. The trade sells into that weakness and leaves room for it to run a little further.

Spina owns the trade, according to the disclosure. CNBC said all opinions expressed by CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates. The content was provided for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset.