A surge in options trading fueled the biggest inflow in two decades for one of the world’s largest exchange-traded funds.
The $155 billion Invesco QQQ Trust Series 1 (QQQ), which tracks the Nasdaq 100, had a $4.9 billion infusion on Monday, according to data compiled by Bloomberg. That’s the largest one-day intake for the ETF since 2000.
The inflow was related to quadruple witching on Friday, a person familiar with the matter said. That’s a quarterly event when options and futures on indexes and equities expire, prompting sky-high trading volumes as investors reshuffle their holdings. More than 17 billion shares changed hands on U.S. exchanges that day -- roughly 20% above the three-month average.
Many expired options are then replaced, forcing dealers to hedge anew by buying the underlying shares. This quarter was particularly dramatic for QQQ: the ETF’s combined call and put open interest clocked in at nearly 11 million contracts at the end of last week, the highest since 2007.
Something similar happened during September’s quadruple witching, when investors withdrew $3.48 billion from QQQ and added $4.16 billion a day later. At least $3 billion of the outflow was directly related to options activity.
“As the old options rolled off and new ones were executed, dealers may have needed to buy the underlying exposure to offset the option risk,” said James Pillow, managing director at Moors & Cabot Inc. “The outcome is the same: more exposure to the Qs.”
A stampede of retail traders into the options market has roiled equities over the past few months, with enormous demand for calls theorized to have created a bullish feedback loop. However, the number of call options traded has slipped from record highs as of late, even as another round of stimulus checks begins to hit U.S. bank accounts.
This article was provided by Bloomberg News.