Is 'hedging the AI bubble at the end of the year = pure waste of money'? Options traders bet that the bull market for U.S. tech stocks will last at least until January next year

Options traders are sending a clear signal through the derivatives market: the rally in tech stocks is far from over.

According to Bloomberg, the open interest in call options for the seven tech giants is nearing its highest level since March 2023 relative to put options, indicating that traders are preparing for further price increases. This phenomenon suggests that the upward momentum in tech stocks is likely to continue at least until January next year.

Matt Maley, Chief Market Strategist at Miller Tabak + Co, stated, "Buying tech stock hedges at the end of the year has been a waste of money over the past year or two." He pointed out that if the market rallies strongly at year-end, institutional traders must buy stocks regardless of whether investors are bullish or bearish.

This market signal helps alleviate concerns about a peak in the tech stock rally. Since early April, the rebound in tech stocks has driven the S&P 500 index up 27%, with a year-to-date gain of over 16%, but an increasing number of strategists have begun to adopt a cautious stance on the sector's outlook.

The Options Market Sends a Bullish Signal

The derivatives market is sending a clear bullish signal.

Data shows that the open interest in call options for the seven tech giants is close to peak levels since March 2023, far exceeding put options, reflecting traders' expectations that these stocks will continue to rise.

The optimism brought by AI technology has pushed the index of the seven tech giants up 25% this year, with Nvidia becoming the first company to surpass a market capitalization of $5 trillion, and the seven major tech companies, including Meta and Microsoft, contributing most of this year's stock market gains.

Currently, institutional investors' confidence in tech stocks remains strong. Among 39 global investment managers interviewed by Bloomberg, most believe that the valuations of the seven tech giants are not excessively inflated, with fundamentals supporting this trade, marking the beginning of a new industrial cycle.

Additionally, although there is uncertainty in the market regarding the sustainability of valuations for leading tech stocks, expectations of interest rate cuts by the Federal Reserve have alleviated some concerns.

Data from the Chicago Board Options Exchange shows that the expected volatility index for tech stocks relative to the broader market has significantly decreased over the past two weeks, dropping from a one-year high of 8% to 4%, a reduction of half.

The improvement in the interest rate environment provides support for tech stocks, helping to lower the financing costs of high-valuation growth stocks and enhancing the present value of their future cash flows.

It is noteworthy that bullish sentiment is not limited to tech stocks. Data shows that overall market optimism is also rising, and options trading activity indicates that investors are preparing for a broader market rally. Mandy Xu, Head of Derivatives Market Intelligence at Cboe Global Markets, pointed out:

Over the past two weeks, demand for call options on the S&P 500 index has been steadily increasing, with the growth rate of demand for call contracts outpacing that of put options However, not everyone is optimistic. Gareth Ryan, Managing Director of IUR Capital, expects an adjustment early next year. He stated, "The first few months of 2026 may retest the low of 6,500 points."

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