Retail investors are buying puts and inverse ETFs to hedge AI exposure while still buying tech stocks. Vanda data show put buying relative to net cash purchases doubled since April. Schwab sees Nvidia absent from top buys.
Retail investors have not walked away from the artificial intelligence trade. They are, however, adding more downside protection through put options and inverse ETFs, according to data from Vanda Research and Charles Schwab.
Put options on the 12 most popular retail-held stocks now equal 110% of net cash purchases, up from roughly 26% in the first quarter. The shift began in April. Vanda's global equity strategist Kaidi Meng told CNBC that outright stock buying declined even as put volumes rose. She said the pattern represents a more selective retail cohort that switches between positions quickly or pairs long stock exposure with protective puts.
Flows into both bullish and bearish tech ETFs have fallen since mid-April. Bullish activity dropped about 50%, Meng said. Bearish ETF flows declined roughly 35%. The move toward inverse and leveraged ETFs, she added, signals a reduction in outright exposure rather than just an uptick in hedging.
Schwab's own metrics paint a less cautious picture. The Schwab Trading Activity Index, or STAX, rose to 59.80 in July from 59.12 in June, marking its highest level since January 2022. The brokerage said it saw more than two buyers for every seller last month. Joe Mazzola, head trading and derivatives strategist at Schwab, told CNBC the firm observed a modest increase in put buying on the Invesco QQQ Trust (QQQ) during the week of Aug. 7. At the same time, Schwab investors continued to sell puts on individual AI-linked stocks such as Nvidia (NVDA), Micron and Sandisk, using elevated premiums to generate income while buying QQQ puts to hedge broader tech exposure.
Mazzola described the hedging pickup as noticeable but not dramatic. "Put selling and call buying, so they're trying to position themselves for an additional rally," he said.
Fidelity's head of advanced trading Bryan Koplin said in an email that many advanced investors evaluate both market opportunities and portfolio risk, adjusting exposures as conditions change. He noted continued interest in leveraged and inverse ETFs, which active traders often use for directional bets rather than pure hedging. Koplin said the products' ease of use can make them an alternative to margin borrowing or short selling.
AlphaScala's proprietary scoring reflects the mixed sentiment. NVDA holds an Alpha Score of 74, labeled Moderate, suggesting the stock retains buy-side momentum even as retail hedging rises. The QQQ trust scores 47, closer to neutral territory. Charles Schwab (SCHW) scores 65, also Moderate, consistent with a retail broker whose customers remain net buyers.
The hedging uptick, while real, has not flipped retail bulls into bears. STAX ended July at a 19-month high. The ratio of put buying to net cash purchases on favored names, however, has doubled. That tension between conviction and caution defines the current retail posture.
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