MW Retail investors started to favor S&P 500 put options. Then the market surged.
By Jamie Chisholm
The savage stock-market rally following U.S. President Donald Trump's tariff turnaround on Wednesday may have caused severe pain for many retail option traders.
As the chart below from Vanda Research shows, retail investors had just started to spend more money on put options than call options, just before the S&P 500 SPX embarked on its dramatic bounce.
After a four-day drop of 12%, the S&P 500 surged 9.5% on Wednesday in the best single day since Oct. 28, 2008.
Put options are usually bought by smaller investors to bet that the price of an asset, in this case the S&P 500, will fall. Buyers of calls expect the asset price to rise.
"The pursuit of downside protection had only just started (and may have already ended). Before Trump's tariff U-turn, retail investors had only just begun to shift their appetite toward puts," said Vanda in an emailed note.
"This matters because it signals that the more sophisticated individuals were increasingly concerned and began spending more for OTM [out of the money] puts relative to OTM calls. This has typically been an early sign of fear potentially spreading further across the less-sophisticated corners of the retail investing world," they added.
The last time retail traders spent more on OTM puts than calls was during the Silicon Valley Bank-inspired market turmoil in March 2023, Vanda noted.
Retail investors have been a major contributor to the explosion of option trading in recent years. The introduction of zero-day-to expiry contracts, or 0DTE, which provide a bet for just one day, in particular has sparked a gung-ho spirit encapsulated by the inhabitants of Reddit's Wall Street Bets site.
However, as S&P 500 futures indicated a lower open on Thursday, some Wall Street Bets traders were preparing to make take a contrarian stance.
-Jamie Chisholm
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April 10, 2025 07:11 ET (11:11 GMT)
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