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Mike Khouw's QQQ Hedge Going Into Election

Mike Khouw's QQQ Hedge Going Into Election

On CNBC's "Options Action," Mike Khouw suggested that investors with a long position in the tech stocks should consider using options in PowerShares QQQ Trust, Series 1 (NASDAQ: QQQ) to get protection for increased volatility.

The NASDAQ-100 is at its all-time highs and if you sell these stocks, you are selling the biggest winners in the economy, said Khouw. He added that you would be selling against the Fed's wishes as the Fed is encouraging us to be long risk assets. We also have the election coming up and the options market is predicting a pretty big spike in volatility around the election, explained Khouw.

He doesn't think that the market will roll over. He just wants to have protection in case of a bigger move lower. To protect the tech portfolio, Khouw wants to buy the November $275/$250 put spread for a total cost of $6.60. The trade offers protection below $268.40 or 8.25% below the current price. Khouw added that the cost of the trade is equal to the move of QQQ over the last three days, so traders who held QQQ are sacrificing only the most recent gains.


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