Tech options traders load up on hedges despite recent stock highs

Options traders have increased their positioning for a potential pullback in technology stocks, a defensive shift that persists even as major tech equities hit new all-time highs. The build-up in protective contracts suggests market participants are preparing for volatility, even while the broader rally continues.

The Nasdaq-100 Index fell as much as 1.8% on Thursday following a Financial Times report indicating that OpenAI revenues are underperforming expectations. As the index declined, the ratio of open put contracts to call contracts for the Invesco QQQ Trust reached 1.49, according to Barchart data. This figure represents the highest level since the final week of June.

This defensive posture is not limited to Thursday's session. The put-to-call ratio for the QQQ has trended toward puts since August, a period that coincided with a steady rise in big-tech prices and a series of record highs through Tuesday. On Wednesday, the two largest options trades of the day were bearish, involving the State Street SPDR S&P 500 ETF Trust and Meta Platforms. These moves indicate that traders are accumulating protection against risks such as rising interest rates or weaknesses in the artificial intelligence narrative.

However, interpreting these signals remains complex. While the elevated put-to-call ratio in the QQQ implies that sell-offs might find support as hedges generate profits, the corresponding ratios for the State Street SPDR S&P 500 ETF Trust and the S&P 500 Index remain near their averages. Furthermore, despite the increase in put volume on Thursday, the largest individual trades were actually bullish.

During regular trading hours, the biggest trade of the session was a $15 million sale of nearly 5,000 put contracts with a 740 strike price expiring in March. These puts were less than $8 out-of-the-money, meaning they would require the index to hold steady or rise to expire worthless. Later at 2 p.m., a trader purchased 6,500 call contracts with an 835 strike price in the same March expiry. This purchase, worth over $8 million, would require a 14% rally to become profitable.

Sentiment shifted during extended trading hours. Just after 4 p.m., a trader bought 15,000 put contracts with a 680 strike price expiring on January 15 for $16 million. Simultaneously, they sold 15,000 call contracts with a 760 strike price expiring on October 16 for $4 million. This combined position carried a total premium of $20 million and was identified as the highest-premium trade of the day.

Don Kaufman, a director of ThinkOrSwim Trader Group and co-founder of TheoTrade, noted that neither bond market moves nor the OpenAI revenue report caused significant damage to prices. He observed that while the market can drop, a more sustained selloff would likely require enough selling pressure to change the market's dynamic from absorbing downside to accelerating it.