The seven giants of the US stock market "two-year leading cycle" sounds the alarm for its end as options traders see a sharp rise in bearish demand

According to Zhitong Finance APP, after two years of seemingly unstoppable gains in large tech stocks, options traders are beginning to show signs of fatigue.

As investors grow increasingly concerned about the United States' dominance in artificial intelligence and the overall economy, the so-called "seven giants" are underperforming the market, prompting investors to seek more protection. This is in stark contrast to recent conditions when several tech giants dominated the gains of the S&P 500 and Nasdaq 100 indices.

Joe Mazzola, Chief Trading and Derivatives Strategist at Charles Schwab, stated, "Stocks that have provided returns to investors over the past two years are now suffering heavy losses."

In the latter half of February, the option costs for most of the "seven giants" have been rising. Apple's (AAPL.US) three-month implied volatility reached its highest level since September last week, with its skew hitting the highest level since August, when the unwinding of yen carry trades shocked global financial markets and stimulated demand for protection.

While traders are generally willing to pay more for downside protection than for speculative upside, the situation for tech stocks was different during the post-pandemic bull market. At that time, market confidence in the "seven giants" was so high that premiums nearly disappeared, with some stocks' call options even charging more than put options.

"Over the past few years, these biases have severely favored call options," Mazzola noted, adding that the bias "is not normal." "Investors not only want to buy stocks but also want to buy rising stocks—and in most cases, they have been rewarded for it."

Another unsettling sign is the increasing positions in put options for stocks like Nvidia (NVDA.US). Nomura Securities indicated that the buying of put options has led to an increasing negative gamma for contracts between $115 and $130. As traders rebalance their positions, this could exacerbate price volatility.

The Bloomberg Seven Tech Stocks Index has more than doubled over the past two years, but it fell 6.5% in 2025, far below the S&P 500's 58% return during the same period. Now, as traders focus on this week's economic data, signs of rising tension are evident across various metrics, from implied volatility to skew and put/call ratios Investors will analyze a series of key data—including Monday's factory activity, Wednesday's service sector data, and Friday's non-farm payroll data—to understand the Federal Reserve's interest rate outlook and ultimately the direction of the U.S. stock market. As potential new tariffs increase uncertainty for businesses, options protection has become increasingly expensive.

In the interest rate market, a risk-off mode has recently dominated, with mild inflation data boosting bets on Federal Reserve rate cuts. On Friday, the yields on U.S. two-year, three-year, and five-year Treasury bonds rose above 4% for the first time since October last year, while the yield on the ten-year Treasury bond fell to 4.2%.

Even as stock prices have recovered from the sell-off triggered by DeepSeek at the end of January, the momentum for bullish tech stocks has begun to wane, volatility has increased, and the skew of put options has widened, with the ratio of call options to put options dropping to its lowest level since September on Thursday. Even Tesla's options, which saw the company's stock price nearly double after the election due to Elon Musk's proximity to the White House, are now showing bearish tendencies.

Moreover, this unease is not limited to tech stocks: around February 18, early signs of broader market concerns emerged as institutional investors began to purchase hedging tools in large quantities to cope with the surge in the Chicago Board Options Exchange Volatility Index. Before the S&P 500 index rose later on Friday, bearish sentiment had pushed the gap between the VIX and the actual volatility of the S&P 500 index to its highest level since December.

Rocky Fishman, founder of the derivatives analysis firm Asym 500, wrote in a report: "The recent rise in VIX has closely matched the actual volatility of SPX, leading to SPX's implied volatility appearing particularly expensive."