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Strategist: ‘Options sentiment remains pretty bearish’

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Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, joins Yahoo Finance’s Alexis Christoforous to discuss the rebound in tech and trade rotations.

Video Transcript

ALEXIS CHRISTOFOROUS: Let's stick with the markets now and bring in Amy Wu Silverman. She is Head of Derivatives Strategy at RBC Capital Markets. Good to see you, Amy. I just would like to get your thoughts on this big bounce back we're seeing in tech right now. Is this the beginning of another rebuild in that sector, or do you think we're going to take another big leg down?

AMY WU SILVERMAN: Yeah, you know, that's definitely the question of the day. Honestly, I think it's a little too early to say one way or the other yet. I can tell you the option sentiment hasn't really turned at all. So even though we're getting this breather today, option sentiment remains pretty bearish. It's stayed in bearish territory these last few weeks. I was very curious if that would change at all this week, but no, investors continue to focus more on owning downside rather than taking this opportunity to load up on more calls, which is a pretty big flip from even the beginning of this year when there was a lot of call buying. So, you know, to me, it just indicates that sentiment hasn't quite shifted yet, and I think this is continuing to be a broader part of the style rotation that we're seeing.

ALEXIS CHRISTOFOROUS: And part of that style rotation is you say you are seeing a big reduction in retail, or the appetite, I guess, for retail? Even though we are seeing things like GameStop and some of those other meme stocks that happen to be in the retail sector this time around moving higher, why is that, do you think?

AMY WU SILVERMAN: Yeah, it's a great question. And it's funny, because when I talk about the fact that retail call buying has actually declined precipitously, people immediately say, but what about GameStop? What about Rocket? You know, there's all these names right now where clearly the retail footprint is evident. And while that's true, I'd say those are really kind of in their own unique bucket. If you take the overall options footprint, so the total volume in call option contracts that are under, you know, 10 lots, something that we consider retail, that volume number has dropped precipitously, you know, from the highs that we reached in August of 2020, the highs that we reached in January of this year.

They've really dropped like a stone. So the overall retail call buying has shifted even though, you know, there continues to be traffic in particular and maybe at GameStop. You know, one point I'd like to kind of highlight though, is that there has been a lot of correlation between getting a stimulus check and a return of call buying. And obviously, we know that the stimulus package is heading its way to the House, so we'll see if that's a positive catalyst.

ALEXIS CHRISTOFOROUS: What about other stocks that are bouncing back today that had high valuations before we saw this rotation out of growth and into value? I'm talking about names like Tesla, Nvidia, PayPal also much higher today. Do you think that this is just a temporary euphoria in that space before, you know, investors take another deep breath and say, you know what? The valuations here are just too rich for me.

AMY WU SILVERMAN: Yeah, you know, one thing we've seen in those names, where I'll just broadly lump them as kind of your mega cap tech plus Tesla, you know, gets to be part of that too. But the last few days, they've really been a source of funds for investors. You know, the reason investors were selling them was so that they could go out and buy more vaccine recovery type names in the energy slash financials slash consumer discretionary space. We've seen a breath taken on that right now, but I think overall, there continues to be that style rotation. And while we'll get days like this, the overall trend is still going to be towards those sectors that had lagged for so, so long and, you know, are finally getting their day in the sun has the vaccine reality becomes more and more real.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Amy Wu Silverman at RBC Capital Markets, thanks so much.