The proportion of new retail investor positions used to buy call options shows that in the past month, this proportion for US mega-cap tech stocks rose to approximately 55%, about 10 percentage points higher than normal and approaching a six-year high. The peak in the 2020 recovery phase was around 57%, while the 2022 bear market low was close to 35%. This indicates that retail investors are betting on the continued rise of tech giants with higher leverage.
This means that the marginal support for tech stocks is shifting from corporate cash buybacks to retail investors using leveraged options to chase the rally: more volatile during upward movements, but also more easily and quickly dispelled when earnings reports disappoint.
Currently, during the peak earnings season for tech giants, crowded call positions may amplify two-way volatility: when earnings exceed expectations, market makers may hedge, leading to chasing the rally; when earnings fall short of expectations or implied volatility declines rapidly, the time value of call options shrinks, and the unwinding of hedged positions may accelerate the decline. Microsoft's pre-earnings options already factored in approximately 6.6% of two-way volatility, significantly higher than its recent average.
