The Big Seven collapsed! Time to Short Volatility?

After two years of chasing a seemingly overwhelming rally in big tech stocks, options traders have shown signs of fatigue.

Investors are scrambling for more protective measures as the so-called "Magnificent 7" of U.S. technology stocks lags behind the broader stock market amid growing concerns about U.S. dominance in artificial intelligence and the overall economy.

In the second half of February, most "Big Seven" companiesOption costs are all rising。 Last week, Apple's three-month IV reached its highest value since September last year, and its slope was also the largest since August last year, when the liquidation of yen carry trade panicked global financial markets and stimulated protection demand.

Another troubling sign is increasing put positions in stocks such as Nvidia. Nomura said buying put options caused traders to put contracts with strike prices between $115 and $130Increased negative gamma。 This could exacerbate price volatility as traders rebalance positions.

Bloomberg's "Big Seven" index fell 6.5% in 2025, after more than tripling in the previous two years, dwarfing the S&P 500's 58% return during that period.

Now, there are signs that as traders focus on this week's economic data, everything from implied volatility and slope to put/call ratiosNervousness is on the rise。

Investors will analyze a range of key data, including factory activity on Monday, services data on Wednesday and non-farm payrolls data on Friday, to get an idea of the Fed's interest rate outlook and ultimately determine the direction of U.S. stocks.

Potential new tariffs increase uncertainty for businesses, and option protection is increasingly costly.

In the interest rate market,Risk aversion modelIt's also dominated lately, with modest inflation data fueling bets on a Fed rate cut. On Friday, the yield of two-, three-and five-year U.S. Treasury Bond reached the 4% threshold for the first time since October last year, while the yield of 10-year U.S. Treasury bonds fell to 4.2%.

Even after stocks rebounded from the DeepSeek AI-triggered sell-off in late January, bullish tech momentum began to fade, with volatility rising and put slopes increasing, with the call-to-put ratio falling last Thursday to its lowest level since September.Even Tesla's options are now showing a bearish trend, the company's stock price almost doubled at one point after the election due to Elon Musk's close ties to the White House.

This panic isn't limited to tech stocks: Around February 18, institutional investors began buying hedges heavily in response to the surge in the Cboe Volatility Index, an early sign of broader market concerns. Bearish sentiment had pushed the spread between the VIX and the real volatility of the S&P 500 to its highest level since December, ahead of the S&P 500's rally late last Friday.

"The rally in the VIX over the past few days is largely unmatched by SPX's actual volatility, making SPX's implied volatility look particularly expensive," Rocky Fishman, founder of derivatives analytics firm Asym 500, wrote in a note.

How to short volatility?

In options, the strategy of shorting volatility is mainly to earn time value by selling options, because when volatility decreases, the time value of options shrinks. Here are a few commonly used strategies for shorting volatility:

1. Sell Straddle or Strangle Strategy

   1. Sell straddle: Sell call and put options with the same strike price at the same time, usually used when the underlying price is expected to be stable or not fluctuate much.

   2. Sell Wide Straddle: Sell call and put options with different strike prices, which is suitable for situations where the volatility is expected to be low, but the specific price direction is uncertain.

   3. Note: Both straddle and wide straddle strategies are naked selling strategies with high risks, and a rebound in volatility or drastic price changes will lead to huge losses.

2. Iron Condor

   1. Sell the call and put options on either side of the underlying asset price, and then buy the call and put options farther away at the strike price as protection.

   2. It is suitable for situations where volatility is expected to be low or price changes are limited, because this strategy is prone to losses in highly volatile markets.

3. Iron Butterfly Spread

   1. Similar to an iron eagle, but similar to a straddle, select the central strike price to sell the call and put options, and then buy the call and put options on the strike prices farther away on both sides.

   2. The gains of this strategy also come from low volatility, but the profit margin and risk are more limited than naked selling straddle.

4. Calendar Spread

   1. Short-selling volatility is achieved by selling near-term options and buying forward options (with the same strike price).

   2. If volatility falls back, recent options will depreciate rapidly, while forward option prices will remain relatively stable, which is conducive to profit-making.

5. Sell a single-leg call (Short Call) or sell a single-leg put (Short Put)

   1. When the underlying asset is expected to fluctuate little or not rise or fall, selling call or put options can earn the loss of the time value of the option.

   2. This single-leg strategy is risky and is usually suitable for situations where you have strong confidence in the trend of the underlying.

6. Ratio Spread

   1. Selling multiple options contracts and buying a small number of options contracts of the same type is often used in situations where volatility is expected to decrease, especially to increase the sell position based on the spread strategy.

   2. When volatility decreases, an increase in the number of options sold helps to increase returns, but the risk is also relatively increased.

Each of these strategies has its advantages and disadvantages, and is usually suitable for market environments with clear expectations for changes in volatility. Generally speaking, the strategy of shorting volatility needs to pay special attention to risk management, because once the volatility rises or the market fluctuates unexpectedly, it will face greater losses.