To The Moon

On Thursday (February 5) local time, U.S. stocks suffered a significant sell-off, with the three major indexes falling across the board, and market sentiment turned to obvious risk aversion. Investors are worried about tech stock valuations, high capital expenditure expectations and macroeconomic data, and risky assets are generally under pressure.

The stock market fell significantly that day: the S&P 500 index closed down about 1.2%, the Dow Jones Industrial Average fell nearly 600 points (about 1.2%), and the Nasdaq Composite Index fell nearly 1.6%. This was the third consecutive session of declines, and the S&P even erased its year-to-date gains. Data from other markets also show that the Russell 2000 small-cap stock index also recorded a decline of about 1.8%.

Technology and growth stocks led the decline, especially high-valuation software and AI-related stocks under pressure. Amazon sees selling pressure ahead of earnings. The stock prices of many chip and technology giants fell, such as Qualcomm, which fell more than 10% during the session.

Not only the stock market, but also other risky assets were sold off: Bitcoin prices fell severely, once falling below the level of about $64,000; Precious metals such as silver and gold likewise experienced significant declines.

Possible Driver Analysis

1. Tech Earnings and Capex WorriesThe high expectations of large technology companies for future capital expenditures have triggered market concerns. For example, Alphabet announced that its annual capital expenditures will increase significantly, raising investors' questions about profitability and capital allocation efficiency. This has exacerbated selling pressure in software and AI-related industries.

2. Technology sector valuation revisions continueThe AI and technology sectors have led the gains for a long time before, but there have been signs of valuation revisions recently. Some software stocks have fallen for several consecutive days and their total market value has evaporated, triggering the market to reassess sector risks.

3. Macroeconomics and Data ImpactMarket expectations for the U.S. job market and economic outlook diverged, with weaker-than-expected employment-related data pushing risk assets weaker. At the same time, the panic index (VIX) rose, reflecting the rise of risk aversion in the market.

4. Risk Asset Run and Liquidity FactorsAgainst the background of the simultaneous decline of stocks, cryptocurrencies and some commodities, the phenomenon of "sell everything" appeared in the market, and deleveraging may have amplified the decline.

Analysts pointed out that the current market turmoil reflects the repricing of highly valued technology assets and uncertainty about the economic growth prospects. Investors are reassessing exposure to more defensive asset or cash positions. In the short term, the market may continue to fluctuate until new fundamental data or policy signals appear.

QQQ Bull Put Spread Strategy

1. Strategy structure

Investors in$Nasdaq 100ETF (QQQ) $Build a Bull Put Spread strategy on options.

This strategy is a long strategy that collects premium, limited returns, and limited risks. It is suitable for judging the situation that QQQ remains above a higher price or only makes a slight correction before expiration.

1 ️ ⃣ Sell higher strike price Put (main source of income)

• Investors sell 1 Put with a strike price of K ₂ = $590 and charge premium $2.4/share

This Put is closer to the current price and is a major source of revenue for Strategic premium. As long as the QQQ expiration price is above $590, the option will lapse and the investor will retain all premium.

2 ️ ⃣ Buy lower strike price Put (control downside risk)

• Investors buy 1 Put with a strike price of K ₁ = $585 and pay premium $1.35/share

This Put is used to provide protection when the stock price drops sharply, lock in the maximum loss, and avoid the larger downside risk caused by naked selling Put.

3 ️ ⃣ Put-side net income (per share)

The net premium charged by investors is:

2.4 − 1.35 = $1.05/share

This is the maximum available benefit of this strategy.

2. Maximum profit

When the QQQ expiration price is ≥ 590 USD:

• Both Put are out-of-the-money

• All options lapsed

At this point the investor retains all net premium income:

• Maximum profit (per share) = $1.05

• Per contract (100 shares) = $105

📈 Occurrence conditions: QQQ expiration price ≥ 590 USD

3. Maximum loss

When the QQQ expiration price is ≤ 585 USD:

• 590 Put sold and 585 Put bought are both in-the-money

• Strike spreads are fully locked

Calculation method:

• Strike spread width = 590 − 585 = $5

• Maximum loss (per share) = Strike spread − Net premium = 5 − 1.05 = $3.95/share

• Maximum loss per contract = $395

📉 Occurrence conditions: QQQ expiration price ≤ US $585

4. Break-even point

The formula for calculating the break-even point is:

Sell Put Strike Price − Net premium

= 590 − 1.05

= $588.95

Maturity judgment rules:

• QQQ > 588.95 → Earnings

• QQQ = 588.95 → No profit, no loss

• QQQ < 588.95 → Loss

5. Strategic characteristics and applicable situations

Strategy Characteristics

• Clear bullish (bearish or small rise) strategy

• It is a structure that collects premium, and the time value is beneficial to investors

• The maximum profit and maximum loss are determined when the position is opened

• Compared with selling 590 Put naked, the risk is clearly capped by 585 Put

Applicable situations

When investors judge:

• There is strong technical support in the 585 area below QQQ

• Even with short-term fluctuations, the probability of falling below 585 is low

• Hope to obtain stable returns through time value without directly buying ETFs

• Or in a volatile and bullish market, use the implied volatility to sell premium when it is high

The essence of this structure is to "use the risk of $3.95 to gain a profit of $1.05". The winning rate is usually high, but the profit-loss ratio is small, which is suitable for prudent long-term judgment.