Traders are losing faith in technology stocks, and the numbers look like something from the financial crisis. The difference in anticipated price fluctuations for the Nasdaq-100 versus the S&P 500 has not been this large since September 2008.
Implied volatility is a measure of how much traders expect a stock or index to move in the near future. The one-month implied volatility on the Nasdaq-100 index (ticker .NDX) sits at 28. The same reading for the S&P 500 (.SPX) is below 16. That difference is larger than anything seen in the last 16 years, except during the 2008 meltdown.
The gap is even more striking when you look at options that bet on a decline.
Even during the worst of the 2020 pandemic selloff, it hit only 13.3. Before that, the only time higher was in September 2008.
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Kevin Davitt, who leads index options content at Nasdaq, said, "Nobody cared about puts back then, it was all about upside but now that sentiment has shifted."
Earlier this year, traders were piling into call options - bets that tech stocks would keep going up. By May, call options struck one standard deviation above the prevailing market price on the Nasdaq had reached the 99th percentile, meaning calls had never been more expensive relative to history. Now the same call options have fallen to the 58th percentile. Meanwhile, puts - bets that stocks will fall - are in high demand.
The VanEck Semiconductor ETF (SMH) fell 4.5% on Thursday alone, dropping back below $592 - a level it first reached in late May.
Scott Nations, the president of Nations Indexes, said the quiet S&P 500 volatility "is normal for the summer." But the Nasdaq's jump in volatility is anything but normal.
Implied volatility, derived from options pricing, measures the market's expectation of future price swings. When it rises, it signals greater uncertainty. The current divergence between tech and the broader market suggests that investors are pricing in unique risks for the sector - perhaps due to high valuations, potential antitrust action, or a shift in investor preference toward value stocks.
The pickup in bearish options demand could mean traders expect a real downturn in tech stocks. But call-buying is still relatively high, and the S&P 500's low volatility might just reflect a typical summer lull. The real test will be whether the gap shrinks or grows in the weeks ahead.
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