Worries about a repeat of the sharp drop in tech stocks in April in the US stock market. Options traders are buying "catastrophic" put options.

After President Trump announced massive tariffs on trade partners in early April, causing a sharp drop in the US stock market, the Nasdaq 100, dominated by technology stocks, has now rebounded by nearly 40%. This wave of rebound is mainly due to the strong performance of large technology stocks, including the "Big Seven" stocks such as NVIDIA Corporation (NVDA.US), Meta (META.US), and Microsoft Corporation (MSFT.US), which have surged by nearly 50% since hitting bottom on April 8th. However, the strong rebound of technology stocks has hidden the dangers lurking beneath the surface of the market. Some potential triggers for a downturn are about to appear - from the Jackson Hole global central bank symposium starting in a few days, to the upcoming earnings report from NVIDIA Corporation next week. Therefore, options traders are increasingly worried about a sharp decline in technology stocks in the coming weeks and are scrambling to buy "insurance" to protect themselves from the impact of a crash. Jeff Jacobson, head of derivatives strategy at 22V Research Group, said traders are "not too worried about a normal, common pullback", but they seem more concerned about a repeat of the April sell-off. Although he himself believes that a shallower decline is more likely. Jeff Jacobson said traders are buying "catastrophic" put options on Invesco QQQ Trust Series 1 ETF, which tracks the Nasdaq 100 index. Put options give investors the right to sell the underlying security at a specific price and are often used as a tool to hedge against market declines. He said that the indicator measuring the cost difference between hedging against a deep decline and a small decline is close to the highest level in three years. Torsten Slok, chief economist at Apollo Management, wrote in a report to clients on Monday that concerns about a bubble in the technology sector are intensifying, as the performance of tech stocks is "amazingly similar" to the late 1990s internet bubble. At the same time, Michael Hartnett, chief investment strategist at Bank of America Corp, has been warning since December last year that risk assets are forming a bubble and predicting a decline in US stocks after the end of the Jackson Hole central bank symposium this Friday. Jeff Jacobson said, "The market has had a big rally. Too many factors could lead to a decline in large technology stocks." For example, the market is concerned about the impact of artificial intelligence on software companies, which has already caused Salesforce, Inc. (CRM.US) to fall 27% year-to-date. If tariff-driven inflation leads the Federal Reserve to not cut interest rates as much as the market had expected, the rally of the "Big Seven" stocks may come to a halt. Jeff Jacobson pointed out, "There may be a flow of funds from the 'Big Seven' stocks into previously lagging sectors, or we may see 'sell news' when NVIDIA Corporation announces its earnings, or even a 'sell news' after the Jackson Hole central bank symposium." He added that the current high level of options skewness indicates that traders are hedging against the risk of a repeat of the April "tariff panic". However, he believes that this concern is exaggerated. While the Nasdaq 100 index fell by over 20% from its peak on February 9th to its low on April 8th, such a magnitude of movement is extremely rare. Over the past 18 months, the average pullback of the Nasdaq 100 has been around 12.5%. Nevertheless, Jeff Jacobson is pessimistic about the short-term outlook for large technology stocks. He bluntly stated, "Clearly, this possibility exists. The concentration of these stocks is too high, and it doesn't take much of a triggering factor for a decline to occur."