Retail investors are stepping up their options buying, pouring money into airlines, small caps and other potential beneficiaries of a COVID-19 vaccine even as stocks hover near record highs.

Volume on call options, which are typically used to position for gains in stocks, is at its highest since early September, according to Deutsche Bank. Much of the activity has come in the form of small-lot purchases on individual stocks, a hallmark of retail investor activity, analysts said.

The brisk trading by individual investors reflects a broader trend that has seen market participants shift money from growth stocks into the shares of companies that may reap the greatest benefits from economic reopening expected to accompany the roll-out of a COVID-19 vaccine, including travel companies and smaller firms.

The Russell 2000, a benchmark for small-cap stocks, is up 16% since Nov. 9, when Pfizer Inc announced positive news from its COVID-19 vaccine study. For the same period, the Dow Jones Industrial Average has gained about 6%, while the tech-heavy Nasdaq Composite is up about 4%.

"There has been a broadening out of retail interest beyond high-growth tech names," said Parag Thatte, a strategist at Deutsche Bank.

Options-buying retail investors piled into technology stocks such as Apple Inc and Salesforce.com Inc earlier this year alongside big institutional players. This time around, shares of companies such as Carnival Corp, American Airlines Group Inc, Boeing Co and United Airlines Holdings Inc are also seeing heavy call buying.

Demand for call options on small-caps has also surged, according to data from options analytics provider ORATS. Among the components of the small-cap Russell 2000, call skew - a measure of demand for calls relative to puts, which are typically used to protect against stock declines - has climbed to the highest level in at least 13 years.

Much of the activity has been concentrated in single-stock options, which are more likely to be used by retail investors, rather than index options, which are primarily used by institutional investors. By contrast, call volume in index options has stayed relatively flat over the past few weeks, Thatte said.

Other evidence points to individual investors contributing heavily to the jump in call volume. The share of small-lot call purchases, in trades of 10 or fewer contracts each, relative to total call volume has also climbed and is at its highest level since early September, according to Christopher Jacobson, co-head of derivatives strategy at Susquehanna Financial Group.

Small trades of fewer than 10 contracts are often attributed to retail investors, who may not be able to afford larger purchases.

Massive call buying is often viewed as a sign of investor exuberance, which can be a precursor to market declines.

The last flurry of call buying in August and early September preceded a sharp, tech-led drop in stocks. But broader factors, such as expected vaccine rollouts and ebbing worries over the presidential election, may provide more solid grounding for such bullishness this time around, said Deutsche's Thatte.

"There's no indication that we're about to roll over in sentiment," he said.-Reuters