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

Options Investors Concerned in the Stock Market

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

Uncertainties About Bitcoin and Interest Rate Cuts

Bitcoin has lost about a third of its value despite reaching record levels last month. As uncertainties regarding the Federal Reserve’s interest rate policies increase, the S&P 500 index is also struggling to change its outlook. Last week, the gap between the index's lowest and highest levels reached its highest point since June.

The Importance of Options Costs in Volatility Increase

The costs of options on the Invesco QQQ Trust Series 1 exchange-traded fund have reached their highest levels compared to SPDR S&P 500 options since August 2024. This situation 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 past six months, VIX levels have also been trading at quite high levels. Vuk Vukovic, chief investment officer at Oraclum Capital, anticipates an increase in volatility by the end of the year, but expects a decrease 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 a correction, but if Fed issues positive forecasts regarding interest rate cuts in December, we could see a significant recovery.”