Retail investors are showing a selective approach to the artificial intelligence sector, increasingly using put options and inverse ETFs to hedge against potential losses while still seeking opportunities for growth in individual technology stocks.
According to Vanda Research's global equity strategist Kaidi Meng, the trend reflects a significant shift from previous years when retail investors would buy major dips without hesitation. Since April, the buying of put options for the top 12 retail-favored stocks has nearly doubled, rising to 110% of net cash buying, despite an overall decline in stock purchases.
This indicates that investors are becoming more risk-averse, opting for protective measures as they reduce long positions. However, data from Charles Schwab shows that many retail investors continue to buy stocks, with the Schwab Trading Activity Index reaching its highest level since January 2022, suggesting that there remains a bullish sentiment among some investors.
Notably, while there is an increase in put buying, it is not dramatic, as investors also engage in selling puts and buying calls to position for potential rallies. The use of inverse and leveraged ETFs is also on the rise, as they provide both hedging opportunities and a means for traders to make directional bets on market movements.
Overall, this cautious yet strategic approach reflects a more sophisticated risk management strategy among retail investors as they adapt to changing market conditions