Investor love is in the air as all three major U.S. indices keep climbing higher and now hover at all-time highs. The markets continue to overcome headwinds, and volatility has vanished with the Cboe Volatility Index down at 14. Hotter-than-expected inflationary data, higher interest rates, or the threat of tariffs have oddly become bullish. However, the Magnificent 7 stocks have seen internal bifurcation in 2025, showing signs of exhaustion. I want to hedge for a tech pullback as I believe the love train for the Nasdaq 100 ETF (QQQ) is about to take a track lower. Market resilience persists this year as traders quickly put the DeepSeek fear in the rear-view mirror. Regarding Trump’s tariffs, investors have ‘short-term’ welcomed delayed tariff implementation which seems to be much further down the road and certainly not now. Mag 7 earnings season results have been quite mixed and investors anxiously await Nvidia earnings on Feb. 26. That being said, the potential for the Mag 7 leadership to fizzle should fuel the rotation trade into industrials, financials, and less loved blue-chip names. (Think tickers like: WM, JPM, and INTC) I remain cautiously optimistic in 2025 but the run that the QQQs has been on for the last two years has been historic and I question its sustainability. Friends at Bespoke Investment’s research stated that Friday would mark 485 straight trading days of closes above the 200-DMA for the Nasdaq 100. That is the second longest in its history since 1985 behind only the 572-trading day streak that ended in October 2018. The trade I want to use a risk reversal in the QQQ’s which will collect premium in selling the upside out-of-the-money call option to help reduce the cost of buying the downside OTM put option. I have technology exposure so selling the call is a hedge. In the event you do not have tech exposure, you must manage this short call and should consider buying an even further OTM call option to define the risk in the event the Nasdaq 100 has more gas in the tank. Sold the 3/21/2025 $555 call for $4.00 Bought the 3/21/2025 $515 put for $4.60 This risk reversal will cost an investor $0.60 or $60 per one spread This was filled when QQQ was roughly trading $536 DISCLOSURES: ( Long QQQ and owns this spread.) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
How to hedge if the resilient Nasdaq runs out of steam