Retail investors haven't given up on the AI trade. They're just buckling up. That's the read from fresh data out of Vanda Research and Charles Schwab, which track how everyday investors move their money. People still want a piece of AI, but they're being more careful about which stocks they buy, and they're adding protection in case the market turns.
The protection comes in a couple of forms. A put option lets its owner sell an asset for a set price before a deadline, and an inverse ETF moves opposite its benchmark. A call option works the other way, letting its owner buy an asset at a set price before a deadline. Put options and inverse ETFs are how investors guard against losses while keeping some upside.
The hedging is visible in the numbers. For the top 12 retail-favored stocks, put buying has nearly doubled since April and now equals 110% of net cash buying, up from about 26% in the first quarter. In the ETF space, bullish tech buying has dropped by half since mid-April, while bearish ETF buying is off about 35%.
That pullback represents a real reduction in exposure, not just a layer of insurance. The numbers point to a cautious mood: still bullish, but with a seatbelt on.
Vanda's Kaidi Meng describes the mood shift plainly: "Retail investors are selectively trading in the classic AI theme but also adding downside protection via options and inverse ETFs."
In earlier years, retail investors would buy almost any big dip without hesitation. That reflex has faded. "Previously, retail bought any major dips almost without question. However, this year, we are seeing a more selective retail investor that is either switching between stocks quickly or buying underlying stocks while also buying protective puts," said Kaidi Meng of Vanda Research.
Net cash buying measures the difference between what investors spend on purchases and what they sell. The shift is visible across ETFs as well. Meng reads that as a real cut in exposure, not just hedging.
"Flows into ETFs signal a trend of reduced outright exposure, rather than just an uptick in downside hedges," she said. The pullback might reflect profit-taking after a long winning streak, or a move toward more speculative stocks and leveraged ETFs, she added.
None of this means retail investors have turned bearish. They continue to position for gains in specific tech stocks while also adding downside protection. A rally where even the bulls hold protective puts is healthier than one built on blind confidence.