How to hedge your portfolio against the Nasdaq-100 using QQQ put spreads

§ 01 Executive Snapshot

• What: The article discusses the use of QQQ put spreads as a hedging strategy against declines in the Nasdaq-100 index.
• Who: Nishant Pant, founder of Trade with Maya and author of Mean Reversion Trading.
• Why it matters: This strategy aims to provide a cost-effective way to protect portfolios from significant losses during market downturns.

§ 02 Key Developments

• The QQQ ETF dropped 4.8% in a single session, with trading volume hitting three times its normal level.
• A specific QQQ put spread setup involves buying a put at $685 and selling a put at $650, targeting the July expiration cycle.
• The author emphasizes that the right time to buy protection is when VIX is between 13-16, not when it is elevated.

§ 03 Strategic Context

• The article highlights the importance of hedging in volatile markets, particularly during periods of high VIX readings.
• Historical data indicates that QQQ experiences declines of at least 2% roughly once a month, underscoring the need for protective strategies even in bullish periods.

§ 04 Strategic Implications

• Implementing a QQQ put spread can mitigate losses significantly during downturns, allowing traders to maintain composure and avoid reactive decisions.
• This strategy can lead to better long-term performance by reducing the emotional stress associated with sudden market drops.

§ 05 Risks & Constraints

• If VIX is above 20, put premiums can become excessively high, making hedging less cost-effective.
• The strategy requires careful monitoring of market conditions and exposure levels, which may be challenging for some traders.

§ 06 Watchlist / Forward Signals

• Traders should monitor VIX levels as a key indicator for opening new hedges, particularly aiming for a calm market environment.
• Seasonal patterns and overbought market conditions should be considered when planning hedging strategies, especially before historically weak months like August and September.