(Bloomberg) -- Stock investors who planned for one thing in 2023 are getting something else entirely. Now, with the tech-obsessed market at risk of running away from them, the race is on to catch up. 

Professional and retail traders alike are rethinking views on computer and software shares with the Nasdaq 100 up 31% since December. Among those stung into action are managers who earlier cut holdings in Apple Inc. and the six other biggest tech stocks by the most in almost three years. ETF investors are similarly wrong-footed after pulling about $3 billion in the past five months from the Invesco QQQ Trust Series 1 (ticker QQQ), the largest exchange-traded fund tracking the Nasdaq 100. 

With the seven tech behemoths surging a median 44% this year — a gain almost five times that of the S&P 500 — there are signs traders are getting desperate for ways to keep up. It’s visible in the options market, where the expected volatility rose alongside the Nasdaq 100 and the cost of bullish options spiked. 

“There’s FOMO in the tech space,” said Brent Kochuba, founder of options platform SpotGamma. “It’s a clear chase.”

Demand for upside calls on the Nasdaq ETF is surging. Implied volatility, a gauge of the cost of options, has jumped to 19 from 16 over the past week for contracts betting on a one-month, 10% rally. Meanwhile, bearish puts had a relatively subdued move in price.

When stocks rise, expected volatility usually drops, because investors tend to use options to hedge against declines. It’s why the Nasdaq 100 and the Cboe NDX Volatility Index (ticker VXN) usually go in opposite directions. Now, with fears raging over missing the next big rally, moves in the two are syncing up at a rate rarely seen. 

As the Nasdaq 100 climbed 3.6% last week, its volatility index, ticker VXN, added 2.5 points. Only four other times have the two demonstrated concerted, big gains to that extent, with the previous one occurring during the pandemic-fueled tech rally in August 2020.

The pair rose together again on Tuesday.

“The ‘call exuberance’ is so high that it is distorting the options market,” said Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets. “This is a bit reminiscent of the YOLO/meme craze of call buying we saw during the pandemic.”

Increasingly, traders are opting to use derivatives to gamble on big tech. That rampant demand has combined with the boom in zero-day options to fuel an explosion in bullish bets every Friday, a pattern that has in turn impacted the underlying stocks. 

The pressure to make up for the lost ground is not insignificant. The average mutual fund trimmed their exposure in the Big Seven — including Apple, Microsoft Corp, Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Nvidia Corp. and Tesla Inc. — by 130 basis points versus its benchmark in the first quarter, data compiled by Goldman Sachs Group Inc. show. As a result, their underweight posture has subtracted 189 basis points from 2023’s performance relative to the market, according to the analysis. 

Money managers had come into this year positioned for pain after tech stocks bore the brunt of 2022’s selloff. The posture has proved ill-timed as the prospect of lower interest rates and optimism over artificial intelligence have fueled a ferocious turnaround in computer and software shares, lifting the S&P 500 almost 18% above its October trough. 

Typically in the options market, put contracts cost more than calls, leading to positive readings in their relative cost, a concept known as skew. 

But it’s the opposite in Nvidia, the poster-child of the AI craze, with options traders far more willing to pay up for calls. The maker of computer chips briefly saw its market value top $1 trillion as its shares surged 174% since December. 

Hedge funds, one group of steadfast equity bears, are flocking to tech megacaps. Those that make both bullish and bearish equity bets have boosted their holdings to 16% of their overall single-stock net exposure, up from 9.7% at the start of the year, data compiled by Goldman’s prime brokerage show. 

“While price action may well go too far — these kinds of things usually do — I’m certainly not inclined to stand in front of this specific freight train,” Tony Pasquariello, Goldman Sachs’ head of hedge-fund coverage, wrote in a note. 

--With assistance from Denitsa Tsekova.

©2023 Bloomberg L.P.