Traders back Tesla and Amazon with rush of options bets

Stock-options activity is hitting a fever pitch, with many traders rushing to bullish bets to profit from a continued advance in everything from technology heavyweights to small companies.

In the first week of November, bullish call-options volumes hit the highest level since January, when activity touched a record, Cboe Global Markets data shows. These contracts give traders the right, but not the obligation, to buy shares of companies at specific prices, by a stated date.

Many traders have turned to options to bet on technology stocks. Around half of all options activity in October was tied to shares of Tesla and Amazon alone, according to Goldman Sachs. Much of the bullish call-options activity has been concentrated in stocks within the tech-heavy Nasdaq 100 index, according to Morgan Stanley.

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Many investors have also turned to the options market to profit from the continued rally in stocks including Nvidia, Qualcomm, and Advanced Micro Devices. All three of those stocks are up more than 18% in November, compared with the S&P 500’s roughly 1% gain. They notched gains on the week of 8 November and defied the Nasdaq Composite’s 1.7% loss.

Options can magnify bullish or bearish bets by allowing investors to put down a relatively small sum of cash for an outsize return if their bets prove to be correct. The contracts have become a popular way for investors to ride the nearly relentless momentum in the stock market higher and higher, at times piling into the same popular trades.

Some traders and strategists have said that the heavy trading activity can exacerbate stock moves, leading to bigger rallies while potentially making market swoons sharper when they do appear.

The frenzied options activity in recent weeks shows how many investors are positioning for stocks to keep rising even after the S&P 500 hit more than 60 fresh highs this year and gained 24%.

“I definitely expect them to go up,” said Sharita Glass, a 51-year-old individual trader based in Jacksonville, Florida, on stocks.

Glass started trading last year, and since then stocks have steadily risen, making call options tied to tech stocks such as Apple and Amazon one of her favored strategies. When stocks are falling, she typically shies away from trading.

“During this period of time of me learning about the stock market, it was heavily in the green most days,” Glass said.

She said she recently sold out of her Apple and Amazon call options to pour money into the shiba inu cryptocurrency.

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Options trading has soared this year and, by one measure, hit a fresh high in October. More than $890bn of single-stock options changed hands on 29 October, the highest level ever, according to Goldman data. And activity in the options market has continued to eclipse stock trading, based on the notional value of options changing hands.

Tesla’s recent lurch higher coincided with a burst of activity in the options market. At times, almost one out of every two dollars spent in the listed US options market went toward Tesla bets.

“This can drive more pronounced trends and momentum than you would otherwise see,” said Greg Boutle, head of US equity and derivative strategy at BNP Paribas, on the options activity. But he said, “There is a risk that if people step back from that for whatever reason, it could exacerbate a reversal.”

Write to Gunjan Banerji at [email protected]

This article was published by Dow Jones Newswires

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