Option Investors Worried About Volatility: Is the Stock Rally Coming to an End?

Options Traders Concerned in the Stock Market

Options traders have started to worry that the strong stock rally of 2023 may be coming to an end. Nvidia's strong earnings report from last week did not change investors' cautious approach, and there is still a careful wait regarding valuations.

Uncertainties About Bitcoin and Interest Rate Cuts

Bitcoin, despite reaching a record level the previous month, has now lost about a third of its value. As uncertainties about Federal Reserve policy increase, the S&P 500 index is also struggling to change its image. Last week, the difference between the index's lowest and highest levels reached its highest point since June.

Importance of Options Cost in Volatility Increase

The cost of options on the Invesco QQQ Trust Series 1 exchange-traded fund has reached its highest levels since August 2024, compared to SPDR S&P 500 options. This indicates a prevailing high-risk perception in the technology sector. Rocky Fishman, founder of Asym 500, noted that the volatility risk premium in the markets remains high.

Short-term Developments and Market Trends

In parallel with the S&P 500’s volatility over the past six months, VIX levels have also been trading at quite high levels. Vuk Vukovic, the Chief Investment Officer of Oraclum Capital, expects an increase in volatility by the end of the year, but anticipates a decline before Christmas.

Expectations for Year-End Rally

Some investors view this situation as a positive signal for the year-end rally. Louis Navellier from Navellier & Associates stated, “It’s hard to determine the bottom of the correction, but if positive forecasts about the Fed’s interest rate cuts emerge in December, we could see a significant recovery.”