dailyloe.com – Traders are navigating a whipsaw market as stock bulls demonstrate resilience against potential sell-offs. The Nasdaq 100 staged a 1.5% intraday rally on Tuesday, while the S&P 500 ended down by less than 12 points.
The day’s turbulence highlighted the conviction among options traders. Notably, the Cboe VIX Index, which measures S&P 500 volatility, ended the day down despite peaking at 19.01, the highest level since April 28.
This situation illustrates a disconnect between the volatility of the benchmark index and its individual components, which are experiencing significant price swings and elevated options prices. The muted VIX presents what some traders view as a hedging opportunity against this volatility.
VIX options caught attention on Tuesday, ranking as the 10th most actively traded options. There were four times more calls purchased than puts, indicating a bullish sentiment. Brent Kochuba, founder of SpotGamma, advised clients that they prefer owning June VIX calls as a hedge due to oil prices rising above $100.
Recent tech performers like Qualcomm, Intel, and memory stocks have seen substantial pullbacks as crude oil exceeded $102 and the 10-year Treasury yield reached its highest level since July.
Options activity in tech ETFs such as SMH, QQQ, and DRAM shifted to a less bullish stance, with more calls sold than bought in each case. However, total premiums still favored calls, particularly in DRAM.
In the SMH ETF, more puts were sold than bought, reflecting a change in trader sentiment. The bearish conviction became more evident in bonds, with significant call selling and put-buying in the iShares long-term bond ETF (TLT).
TLT fell two-thirds of a percent to approach a near one-year low following the CPI data, which indicated the warmest reading in almost three years. Traders executed over 151,000 TLT puts while selling only 97,000, with less than 76,000 calls purchased, as reported by ThinkOrSwim data.
One trader invested over $1 million in 24,000 July 81 puts, anticipating at least a 5% drop in the ETF within two months. TLT traded just shy of 600,000 contracts, marking it as the 13th-busiest ticker of the session, according to SpotGamma.
