The recent decline in U.S. stocks is leading to a surge in options trading for the Nasdaq 100 Index, as the tech-heavy index experiences significant volatility.
The Nasdaq 100, which is comprised of about 70% technology companies, has fallen 7% from its record high on July 10. This decline has affected major tech stocks that have been key drivers of market gains this year. In comparison, the S&P 500 has dropped 4% from its recent peak, also set earlier this month.
Options trading on the Nasdaq 100 Index has surged as investors seek to hedge their exposure to technology stocks. The average daily volume of NDX options has reached 62,000 contracts, marking a record high. Although this is still small compared to the 3.9 million daily contracts traded on the Invesco QQQ ETF, which tracks the Nasdaq 100, NDX options volume has hit a record despite QQQ options trading falling short of the peak reached during the market selloff last October.
NDX options are generally more expensive than those on other indexes due to the index’s higher value—roughly four times that of the S&P 500. This makes trading NDX options more costly compared to QQQ contracts. Nonetheless, the recent turmoil in tech stocks has increased the appeal of these options. Steve Sosnick, chief strategist at Interactive Brokers, noted that the top stocks in the Nasdaq 100 are significantly impacting the S&P 500, further driving interest in NDX options.
