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

Option Investors Worried About Stock Market

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

Uncertainties About Bitcoin and Interest Rate Cuts

Bitcoin, despite reaching a record high the previous month, has currently lost about a third of its value. As uncertainty about Federal Reserve’s interest rate policies increases, the S&P 500 index is also struggling to change its picture. Last week, the difference observed between the index's lowest and highest levels reached its highest point since June.

The Importance of Option Costs in Volatility Increase

Invesco QQQ Trust Series 1 option costs have reached their highest levels since August 2024 compared to SPDR S&P 500 options. This indicates a high risk perception prevailing in the technology sector. Rocky Fishman, founder of Asym 500, pointed out that the volatility risk premium in the markets is remaining high.

Short-Term Developments and Market Trends

In parallel with the volatility of the S&P 500 over the last six months, VIX levels have also been trading at quite high levels. Vuk Vukovic, chief investment officer of Oraclum Capital, expects an increase in volatility until 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 a year-end rally. Louis Navellier from Navellier & Associates stated, “It’s difficult to determine the bottom of the correction, but if there are positive forecasts regarding the Fed’s interest rate cuts in December, we could see a significant recovery.”