For years preceding the COVID-19 pandemic, call option volume averaged about 15% of daily NYSE volume. This was a normal level of speculation that investors were used to.

Then, as the chart above illustrates, in 2020 call buying just exploded. As of this writing the 5-day moving average of call volumes relative to the NYSE volume, call volume was over 60% of NYSE volume.

While the market has done well this year, with many indexes up double digits, there are some segments of the market that haven’t done quite so well. In particular, technology, or at least a sub-group of technology stocks, have done rather poorly.

Why do we connect these two observations? Because it would seem that the spike in call option volume has really been correlated to the performance of the Goldman Sachs Non-Profitable Index. When an investor buys a call in a stock, the market maker has to hedge by buying the underlying stock. This virtuous cycle pulls stocks prices upward.

As traders return from the holiday week, will they go back to pressing the “buy” button on call option trades?  In the February-May period, the decline in the GS Non-Profitable Tech Index led to a decline in call volumes, turning the sell-off into a sharp 40% drop in the GS index. Now that non-profitable tech companies are making new relative lows vs. the S&P 500, it will be interesting to see if the call option activity returns next week or begins another vicious selling cycle like February-May for these non-profitable tech stocks.