Software stocks just passed a big milestone

• Cybersecurity stocks like Palo Alto Networks and CrowdStrike have surged 67% and 63% respectively in 2026, driven by increased security demand from AI adoption and potential M&A activity
• Options traders have shifted bullish on software, with call volumes in IGV outpacing puts and doubling put volumes on Monday, while semiconductor stocks (SMH) saw puts outnumber calls three-to-one
• Oracle saw $1.3 billion in options premium Monday with $1 billion in calls, while CrowdStrike options are pricing in a 9% move for Wednesday's earnings (though options have overpriced actual moves in the last seven quarters)

Summary: Software Stocks Reach Major Milestone

Key Development:

Software stocks have completed a significant comeback, with the iShares Expanded Tech-Software Sector ETF (IGV) turning positive for 2026 after rallying approximately 6% on Monday. The sector had previously plunged nearly 40% from last year's highs due to an AI-driven sell-off.

Sector Performance:

Cybersecurity stocks are leading the recovery, with the ETFMG Prime Cyber Security ETF (HACK) up over 30% year-to-date. Notable performers include CrowdStrike and Palo Alto Networks, gaining 67% and 63% respectively in 2026. Analysts attribute this strength to increased cybersecurity demand driven by AI adoption and potential M&A activity.

Market Dynamics:

Options trading reveals strong bullish sentiment. In IGV, call volumes more than doubled put volumes on Monday, with twice as many calls bought than sold. This contrasts sharply with semiconductor ETF (SMH), where put volume exceeded calls by 3-to-1, indicating a clear rotation from chips to software.

Oracle, IGV's largest holding, saw particularly heavy options activity with $1.3 billion in total premium, including $1 billion in call contracts. More than 114,000 calls were likely purchased versus just 25,000 puts.

Upcoming Catalysts:

Major earnings reports loom this week, including Palo Alto Networks (Tuesday) and CrowdStrike (Wednesday). Options are pricing in a nearly 9% move for CrowdStrike, though historical data shows options have overestimated actual moves in the last seven quarters.

Wedbush Securities analyst Dan Ives characterized the rally as "white-hot," suggesting sustained momentum despite earlier skepticism about the sector's prospects.