Investors turn to 'Big Short' strategies as AI stocks tumble, fears of a market crash rise - report

Investors are turning to put options and credit-default swaps to hedge against losses as AI stocks tumble and borrowing costs rise. Friday's tech selloff wiped out over $1 trillion in market value. The cost of insuring debt from major tech companies rose to its highest since 2021. The trend is compared to 'The Big Short' but investors are mainly protecting gains.

Investors are increasingly turning to put options and credit-default swaps to protect their gains as AI stocks tumble and borrowing costs rise, according to a Wall Street Journal report. Friday's technology stock selloff wiped out more than $1 trillion in market value, with the Nasdaq 100 falling 3.4% and the S&P 500 dropping 1.8%. The S&P 500's technology sector declined more than 4.2%. Stephen Solaka of Gateway Investment Advisers said demand for downside protection is significant, noting that some investors have made so much money they are quitting to hedge their stock. Trading in put options tied to AI cloud infrastructure company CoreWeave surged to record levels in October. The cost of insuring against debt defaults by major technology companies including Amazon, Alphabet, Microsoft, Meta, and Oracle rose to its highest level since 2021. Eugene Grinberg of Solve said there were no exceptions, suggesting broad market concern. Trading firm Jump Trading has begun offering contracts to protect against a potential collapse in computing power prices. The article compares the trend to 'The Big Short' but notes that today's investors are mainly protecting gains rather than betting on a crash.