Deutsche Bank Sounds Alarm on Explosive Call Option Volumes for US Mega-Cap Tech Stocks – What’s Next?

In a new note released by Deutsche Bank, a significant increase in call option volumes for US mega-cap growth and tech stocks has been highlighted. According to Yahoo Finance’s Julie Hyman, the net call volume in Deutsche Bank’s latest chart has shown a notable spike, especially when compared to the rest of the S&P 500 index.

The chart presented by Deutsche Bank showcases the call volume for mega-cap growth and tech stocks in purple, contrasted against the call volume for the rest of the S&P 500 in blue. Historically, these two categories have tracked closely together, but recently there has been a clear divergence. The call option volume for mega-cap growth and tech stocks has surged, indicating a strong bullish sentiment towards these sectors. On the other hand, the call option volume for the rest of the S&P 500 has remained relatively subdued.

This significant increase in call option volumes for mega-cap growth and tech stocks can be interpreted as a bullish bet on these sectors. However, some market analysts, including Steve Sosnick from Interactive Brokers, have raised concerns about a potential “blow off top” scenario. This term refers to a situation where a market experiences a rapid and unsustainable increase in prices before a sharp reversal.

Deutsche Bank also points out other factors that could potentially impact the market in the near future. They mention that a large portion of the S&P 500 companies will be entering a buyout blackout period, where they are restricted from buying back their own shares. This could remove a significant source of support for these companies, potentially leading to increased volatility in the market.

Additionally, Deutsche Bank highlights that market positioning is currently stretched, with positioning in the 95th percentile. This suggests that the market may be due for a correction or a pause in its upward momentum. Historically, when market positioning reaches such extreme levels, there is often a reversion to the mean, indicating a potential shift in market dynamics.

Overall, the surge in call option volumes for mega-cap growth and tech stocks, combined with stretched market positioning and upcoming buyout blackout periods, suggests that the market may be entering a period of increased volatility and potential correction. Investors should closely monitor these developments and adjust their strategies accordingly to navigate the evolving market conditions.