Nasdaq 100 call option costs hit 2007 high as AI rally draws bets

Traders are piling into bullish bets on the Nasdaq 100 at the fastest pace in nearly two decades, even after a 30% rally in three months.

Tech call option costs relative to the S&P 500 have surged to their highest since 2007, according to Citigroup data, as traders double down on artificial intelligence and growth stocks rather than taking profits.

"Traders are currently in an extremely bullish state," said Brent Kochuba, founder of options platform Spot Gamma.

Demand for call options on the Invesco QQQ Trust, the largest exchange-traded fund tracking the Nasdaq 100, is accelerating faster than the broader options market. The pattern suggests capital is rotating into AI and growth names after the index surged 30% over the past three months — a move that would typically trigger profit-taking. Citi's measure of tech call option premiums relative to S&P 500 options now sits at levels last seen before the global financial crisis.

The concentrated bets carry risk. If the AI trade that has dominated market narratives this year begins to unwind, the heavy call option exposure could amplify losses. The Nasdaq 100 fell 1.5% on Wednesday, underperforming a nearly flat S&P 500, and lagged again on Thursday — a divergence that some traders see as an early warning signal. A sustained rotation out of technology stocks would hit the most crowded trades hardest, potentially triggering a cascade of forced selling as dealers hedge their short call positions.

The options market data shows the extent to which investor conviction in AI-related stocks has become a dominant market force. While the rally has been supported by strong earnings from companies tied to artificial intelligence, the speed and concentration of the move have raised concerns about overcrowding. The pattern echoes previous episodes of extreme bullish positioning in tech, including the dot-com era and the 2021 meme-stock frenzy, though the current rally is backed by actual earnings growth from AI-related businesses.

For portfolio managers, the elevated cost of tech call options presents a dilemma: paying up for upside exposure risks significant losses if the AI trade falters, while staying on the sidelines means missing further gains in a market where momentum has been the dominant factor. The next major test for the AI trade comes later this month, when several large-cap technology companies are scheduled to report quarterly results.

This article is for informational purposes only and does not constitute investment advice.