Technology stocks are rising so far, so fast that some investors are starting to position for the move to lose momentum.<\/p>\n
After advancing for five consecutive months, the Nasdaq 100 Index has risen each day but one in September as investors bet on optimism around artificial intelligence and Federal Reserve interest-rate cuts to keep technology stocks moving higher. A gauge of expected volatility in the index hasn\u2019t budged in months. And on Wednesday, infrastructure software giant Oracle Inc. made history with a 36% pop, its biggest gain since 1992.<\/p>\n
That\u2019s pushed some investors to bid up put options to protect this year\u2019s gains. The price of hedging against a 10% drop in the Invesco QQQ Trust ETF, the largest exchange-traded fund tracking the Nasdaq 100, over the next month is at the highest since 2022 relative to the cost of protection against a similar rally.<\/p>\n
\u201cThe market is at highs, volatility is at lows, I think there are a lot of easy arguments to make as to why you should hedge,\u201d said Greg Boutle, head of US equity and derivative strategy at BNP Paribas SA. \u201cSeptember does tend to be a bit seasonally weaker\u201d as well, he added.<\/p>\n
It\u2019s sign of growing unease ahead of a string of market-moving events in the next month that include the Fed\u2019s interest rate decision on Sept. 17 and the consumer price index report later on Thursday. The put-to-call skew on QQQ was higher just 8% of the time in recent data, according to Nomura Holdings Inc.<\/p>\n
– – –<\/p>\n
Rising Uncertainty<\/p>\n
With exposure to tech high-flyers looking rich by any measure, the more the group goes up, the more investors are forced to hedge against a \u201ctail event\u201d – a potential crash in the market, according to Charlie McElligott, Nomura\u2019s cross-asset strategist. That\u2019s pushing the put-to-call skew even higher at a time when demand for call options remains relatively subdued.<\/p>\n
The hedges were likely added to protect long equity portfolios from a potential market decline, says Christopher Jacobson, co-head of derivatives strategy at Susquehanna International Group. To be sure, the put-to-call skew measures a relative cost of put options to calls and not the actual price investors pay for downside protection, which is lower than it was at the peak of trade-war uncertainty in April.<\/p>\n
While big volatility gauges aren\u2019t sounding alarms – the VIX Index is hovering below 16 – there is a sense of nervousness that\u2019s evident beyond big tech stocks. On Tuesday, a trader paid around $9.3 million for bearish options on the SPDR S&P 500 ETF Trust, a position that pays out if the S&P falls 3.6% by Sept. 19. And on Monday, an investor bought a long-term hedge against a 58% collapse in the S&P 500 by December 2026 for $13.4 million.<\/p>\n
The moves make sense considering stocks often underperform in September, with the market dropping 56% of the time, the most of any month going back to 1927, according to data from Bank of America Corp.<\/p>\n
For Boutle, the current state of equity markets is similar to 2019, when a strong run in the first six months of the year gave way to pockets of weakness in the second half just after the Fed reduced rates.<\/p>\n
He recommends clients buy protection against a 5% drop in the S&P 500, while selling insurance against a deeper drop he says is unlikely to materialize.<\/p>\n
\u201cWe\u2019re really focused on shallow hedges rather than the \u2018wingier\u2019 ones,\u201d Boutle said.<\/p>\n","protected":false},"excerpt":{"rendered":"Technology stocks are rising so far, so fast that some investors are starting to position for the move…\n","protected":false},"author":2,"featured_media":10121,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[114,85,46,190],"class_list":["post-10120","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-business","tag-il","tag-israel","tag-markets"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/10120","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=10120"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/10120\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/10121"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=10120"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=10120"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=10120"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}