Retail investors remain engaged in the artificial intelligence trade but are adopting a more cautious approach as markets head into the fall, according to data from Vanda Research and Charles Schwab [1]. Investors are increasingly using put options and inverse ETFs to hedge risk while maintaining upside exposure in individual technology stocks [1]. Vanda's global equity strategist Kaidi Meng noted that retail flows have changed significantly compared to previous years, with investors now switching between stocks quickly or buying underlying stocks alongside protective puts, rather than indiscriminately buying dips [1].
Since April, put buying of the top 12 retail-favored stocks in 2026 has nearly doubled versus the first quarter, rising to 110% from about 26% of net cash buying, even as outright stock purchases have declined [1]. This shift indicates a preference for downside protection and reduced outright exposure, as evidenced by the growth of ETF strategies, including levered vehicles [1]. Flows into ETFs signal a trend of reduced outright exposure rather than just an increase in downside hedges [1].
Vanda's data further shows that since mid-April, buying of both bullish and bearish tech ETFs, including leveraged funds, has declined. Bullish activity fell sharply, down about 50%, while bearish ETF activity declined by roughly 35% [1]. Overall, retail investors are adding downside protection through puts on individual stocks and inverse ETFs for broader market exposure, while also cutting their long positions [1]. This reduction in long exposure may reflect broader profit-taking after years of successful buy-the-dip strategies or a shift toward increased risk via more speculative stocks, levered ETFs, and betting sites [1].
Despite the increased demand for protection, retail investors have not broadly turned bearish. Data from Charles Schwab show that many investors are still buying and positioning for further upside. Schwab investors continued to buy in July despite a choppy market backdrop, lifting the Schwab Trading Activity Index (STAX) for a third straight month and bringing it to its highest level since January [1].
CONCLUSION
Retail investors are recalibrating their AI-related strategies, favoring selective trades and increased hedging through puts and inverse ETFs. While outright bullish activity has declined, many remain optimistic, as evidenced by continued buying and a rising STAX index. The market takeaway is a shift toward caution and risk management, but not a wholesale retreat from AI exposure.