Bulls are back in the Nasdaq and options are aflutter

By Saqib Iqbal Ahmed and April Joyner

NEW YORK (Reuters) – Investors are once again chasing upside in shares of tech companies after a sharp sell-off in U.S. equities last month.

Despite last week’s market dip, the tech-heavy Nasdaq remains around 3% away from its record high. Traders – many of them retail investors – have plowed back into call options, used to position for gains in shares.

“There hasn’t been that catalyst to really move the market down,” said Matt Amberson, principal at options analytics firm ORATS. “Starting from late September, we’ve seen call buying come back.”

Since its recent trough on Sept. 23, the Nasdaq has climbed nearly 10%. The index includes many growth-oriented companies, whose shares remain in favor in the wake of the novel coronavirus pandemic as their businesses have remained largely intact.

GRAPHIC: Nasdaq index closes in on record – https://fingfx.thomsonreuters.com/gfx/mkt/xlbpgwbmmpq/Pasted%20image%201603113596475.png

Speculators in the futures market have had a dramatic change of heart. Funds have pulled back from one of the biggest short positions in U.S. tech stocks in over a decade, in a near-record buying spree of Nasdaq futures, CFTC data from last week showed.

GRAPHIC: Speculators board the tech train – https://fingfx.thomsonreuters.com/gfx/mkt/xlbvgwbymvq/Pasted%20image%201603116391114.png

Inflows to the Invesco QQQ Trust Series 1 , a popular exchange-traded fund that tracks the Nasdaq 100 <.NDX> index, are also robust. The QQQ has reached $144.65 billion in assets under management, a record high, according to data from Lipper.

GRAPHIC: Tech takes off – https://fingfx.thomsonreuters.com/gfx/mkt/jbyprxlzjpe/Pasted%20image%201602790559999.png

Moreover, volume has rebounded in equity call options, particularly for single-stock contracts. The ratio of call options relative to put options, a measure of how bullish traders are, has climbed since late September and is close to the peak reached just before the sell-off that month.

Previously, activity in single-stock options had surged as a large investor, later reported to be SoftBank Group Corp <9984.T>, made significant option purchases in August.

GRAPHIC: Running with the bulls – single stock options – https://fingfx.thomsonreuters.com/gfx/mkt/yxmpjjryapr/Pasted%20image%201603118664308.png

Interest in call options for companies such as Apple Inc , Facebook Inc and Netflix Inc – members of the market-leading group collectively known as FAANG – has especially climbed in recent weeks. Skew, a measure of demand for puts versus calls, is near its lowest levels over the past year for those companies, according to Trade Alert, meaning investors are positioning for more upside.

GRAPHIC: Tech bulls come calling – https://graphics.reuters.com/USA-STOCKS/OPTIONS-CALLS/azgpojbqqvd/chart.png

(Reporting by Saqib Iqbal Ahmed and April Joyner; editing by Megan Davies and Lisa Shumaker)