NEW YORK (Reuters) – Options investors have pulled back from bullish bets on some tech-related stocks amid a sharp selloff in U.S. equities, after a surge in call buying over the last few weeks.
The caution is partially reflected in a measure called skew, which gauges demand for protective put options in relation to call options, which are used to bet on upside.
Amazon.com Inc’s 30-day skew, for instance, has jumped to its highest level since July, according to data from Trade Alert. Skew for other tech-related companies, including Salesforce.com Inc, Adobe Inc and Facebook Inc, has also risen sharply.
For a graphic on Skew plunges, then leaps Skew plunges, then leaps:
That contrasts with the last several weeks, when institutional buying picked up in call options for those companies. A substantial portion of those trades has since been attributed to SoftBank Group Corp, which has built up stakes in publicly traded tech-related companies.
Those institutional trades added to earlier activity from retail investors in call options for popular tech-related companies such as Apple Inc and Tesla Inc.
The robust options activity likely contributed to the sharp climb and subsequent sell-off in tech-related names, which have been dubbed “stay-at-home” winners in the wake of the coronavirus pandemic.
When dealers sell call options, they buy the underlying stocks to balance their market exposure. Large amounts of call purchases can thus exacerbate both upside moves in stocks and downward slides once those positions are unwound.
Still, the market swings of the last few days “do not necessarily mean that we are in for a much higher volatility environment,” said Solita Marcelli, Americas chief investment officer for UBS Global Wealth Management, in a recent research note. “Many of the call buyers might have closed out their positions.”
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