Traders on the New York Stock Exchange have witnessed a remarkable surge in software stocks, transforming what began as a recovery into a full-fledged bull market. The iShares Expanded Tech-Software ETF (IGV) has risen 35% since its low in April, recently experiencing a notable 5% increase during Friday’s trading session, driven largely by substantial gains in ServiceNow and Workday.
With traders eager to capitalize on this upward momentum, options trading for the ETF has surged, with volumes exceeding five times the average daily activity of the past month. Friday’s session alone saw traders purchasing over 50,000 calls on IGV, starkly contrasting with just under 6,000 put options. This trend continued for individual stocks like ServiceNow, Salesforce, and Oracle, each showing call option volumes that outperformed puts by a factor of five.
Midday trading indicated that more money was flowing into IGV options than its semiconductor counterpart, the SMH ETF, with a striking $120 million of the total $140 million in IGV premiums attributed to call contracts, as reported by SpotGamma. Dan Deming, managing partner at KKM Financial, noted a continuous divergence between IGV and semiconductors, expressing expectations of ongoing mean reversion: “It’s just been so dramatic. Our trade is more long software than short semis.”
Despite the bullish sentiment, some traders were cautious, opting to hedge their call purchases in IGV with spreads, as evidenced by several significant notional trades indicating call sales, particularly a cluster of multi-million-dollar sellers of the 90-strike calls expiring in December.
Among the various contracts, the June 18 105-strike call gained popularity, with over 20,000 contracts exchanged. This particular option requires just over a 5% move to break even, showcasing the high stakes as traders navigate this bullish environment in the software sector as optimism continues to swell.
