While retail traders double down on their “buy-the-dip” mantra, hedge funds are taking the opposite tack — cutting risk and buying protection as market volatility creeps higher, according to a report by Bloomberg citing data from Citadel Securities.
Te market-makers figures show that retail investors have been net buyers of call options for 24 straight weeks, matching a record streak since 2020. The so-called “YOLO crowd” – traders guided by the belief that “you only live once” – has piled into bullish positions even as geopolitical risks and macro uncertainty rise.
Institutional investors, by contrast, are showing mounting caution. Hedge funds have been net sellers of US equities for five consecutive weeks, according to Bank of America, while also increasing their hedging activity. Citadel’s data show institutional clients were net buyers of puts in eight of the past nine weeks – a clear signal that professional investors are preparing for downside risk.
The divergence reflects how tactically driven hedge funds are positioning for potential market dislocations amid renewed trade tensions, a lingering U.S. government shutdown, and a mixed start to earnings season.
Systematic and quant-driven strategies, including commodity trading advisers (CTAs), are also expected to maintain a risk-off stance. Goldman Sachs estimates that CTAs will be net sellers of equities across all market scenarios over the next several weeks as trend signals weaken.
The caution comes after a long stretch of low volatility – the S&P 500 went 119 sessions without a 2% down day before last week’s selloff. While retail traders have so far been rewarded for staying bullish – with the index rebounding 2.2% from Friday’s low – hedge funds are bracing for a more uneven path ahead.
