Interactive Brokers chief strategist Steve Sosnick says a bullish tilt in S&P 500 options may help explain why memory-chip stocks have been snapping back hard from steep intraday drops. Options volume has surged in recent years, and the ratio of puts to calls has fallen sharply, with a record 4 million S&P 500 call options changing hands earlier this week.
The S&P 500 sits just a fraction below record highs after another slide, driven by renewed valuation concerns about AI companies, triggered an even faster rally, as chips and hyperscaler stocks bounced back. Sosnick argues that a shift in how traders use index options may help explain those sharp reversals.
Memory-chip stocks swing, then recover
Memory-chip stocks have been at the center of market volatility over the past few weeks, after getting caught up in the blow-up of the hedge fund Situational Awareness. Sandisk and Western Digital opened Thursday with double-digit percentage losses after both companies posted earnings and revenue that beat consensus estimates but paired that with guidance that appeared to underwhelm the more enthusiastic investors.
Western Digital was down 21.5% at one point but cut that loss to about 8.5%. Sandisk fell 13.8% and at one point cut its loss to about 3%, though both stocks fell back a bit more later in the day.
For Sosnick, the bigger story is that intraday rally after the initial shakeout, which he says shows dip buying remains a key source of activity even when it results only in countertrend moves.
S&P 500 options tilt more bullish
Sosnick points to a LinkedIn post from Cboe's Henry Schwartz, the exchange's vice president of market intelligence, who tracks trading in S&P 500 call options and puts. Schwartz notes that as options volume has exploded in recent years, the ratio of puts to calls has fallen sharply, pointing to a change in user behavior compared with prior decades.
Earlier this week, a record 4 million S&P 500 call options were traded, with a put-call ratio of 0.83 — the second-lowest reading ever. Sosnick is wary of leaning on one statistic alone, but argues the near-record-low ratio is still worth weighing: "it is indisputable that bullishness is quite well-ingrained in the market's mindset."
He adds that dips in major indexes have grown shorter and shallower, and suggests traders now appear to treat index options more as tools for speculation than for managing risk against losses — though he stops short of calling a market top.
Bears still outnumber bulls
Even so, sentiment surveys tell a more cautious story. For a third straight week, the American Association of Individual Investors survey found more bears than bulls in the period through Wednesday, even as the S&P 500 rallied to record highs during that stretch.
Source: MarketWatch
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