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Futures bounce after tech rout sends Nasdaq into correction

(Reuters) – U.S. stock index futures jumped on Wednesday following a brutal sell-off in heavyweight technology stocks that sent the Nasdaq Composite index into correction territory in just three sessions.

Tesla Inc (O:TSLA) climbed 4.4% in premarket trading after shedding about $80 billion of its market capitalization in the previous session following its surprise exclusion from the S&P 500.

Apple Inc (O:AAPL), Salesforce.com Inc (N:CRM) and Microsoft Corp (O:MSFT), which have borne the brunt of the tech rout, led gains among the Dow Jones Industrials‘ 30 components.

“You went from being very, very overbought to now being more like evenly balanced,” said Andrea Cicione, head of strategy at TS Lombard in London.

The tech-heavy Nasdaq (IXIC) tumbled 4.1% on Tuesday, bringing total losses since Sept. 2 to 10%, with declines also led by stocks such as Amazon.com Inc (O:AMZN), Facebook Inc (O:FB) and Netflix Inc (O:NFLX) after a rally dominated by the so-called “stay-at-home” winners.

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The correction has been partly driven by worries that sellers of call options would unwind massive amounts of stocks that they bought during the run up in U.S. stocks as hedges.

Media reports said SoftBank Group Inc (T:9984) has made big bets on equity derivatives tied to tech firms, while retail investors paid $40 billion of premium on call options in the past month, according to OCC data.

In signs of growing unease about the positioning in tech stocks, a measure of demand for protective put options in relation to call options, used to bet on upside, has risen sharply.

Still, analysts said they did not expect a prolonged sell-off in U.S. stocks against the backdrop of an easy monetary policy by the Federal Reserve.

Later this week, the U.S. Senate also aims to vote on a drastically scaled-back Republican coronavirus aid bill, despite opposition from Democrats who are needed for any measure to be enacted into law.

At 7:15 a.m. ET, Nasdaq 100 e-minis were up 136.5 points, or 1.23%, Dow e-minis <1YMcv1> were up 68 points, or 0.25%, and S&P 500 e-minis were up 15.75 points, or 0.47%.

Wall Street’s fear gauge (VIX) slipped further away from near three-month highs as stock markets also shrugged off news about AstraZeneca (L:AZN) pausing global trials of its experimental COVID-19 vaccine after an unexplained illness in a participant.

Volatility is expected to rise in the run-up to Nov. 3 U.S. presidential elections, with September and October also historically the most volatile two-month stretch of the year.

Lululemon Athletica Inc (O:LULU) dropped 5.2% after the yogawear maker forecast a drop in current-quarter adjusted profit due to higher marketing expenses.

Tiffany & Co (N:TIF) tumbled 8.9% after French luxury goods giant LVMH (PA:LVMH) warned it was set to walk away from its planned takeover of the U.S. jeweler due to complications arising over the deal.

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