A record-breaking week for options powers S&P 500 surge; volatility gauge is near 2026 low

Stock market bulls got some huge affirmation this week as the S&P 500 made all-time highs, options volumes set records, and shares of this year's star IPO – SpaceX – stabilized and rallied despite its earnings report and the end of its first lockup period. On Friday, the Cboe Volatility Index (VIX) fell to its lowest level since January as the S&P 500 added 0.6%, bringing the week's advance to 3.6%. More than four million S&P 500 index calls traded on Cboe Global Markets Tuesday as the benchmark gauge surged above 7,700 for the first time in history. That topped the previous record for call trading in May by 10%, according to exchange data. "That's what it used to sound like," one trader on the Cboe floor in Chicago told me after Tuesday's roaring rally, referring to when thousands of traders crammed the pits in decades past. "Sometimes it sounds like that on down days, but we were up. That was really busy." Zero-day-to-expiry call options accounted for 2.4 million trades in the S&P 500 on Tuesday, also a record. The ratio of puts to calls among all options plunged to 0.83, the second-lowest recorded. The average is greater than 1, reflecting the primary usage of put options as hedging instruments. Total open interest in the S&P 500 ended the week at 27.4 million contracts, in the 93rd percentile over the past year, according to Cboe. The ratio in open interest of calls is in the 95th percentile. Where that open interest is concentrated can help give investors an idea where the stock market might find support or resistance going forward. The most popular strike in the State Street SPDR S&P 500 ETF Trust (SPY) by combined open interest of both puts and calls is the 760-strike, about 1.7% below where the fund closed on Friday, according to Barchart data. That's because of 94,000 open puts, which could create support for the market on dips that turn into profit-taking for lingering bears who just had a rough week. On the upside, the biggest level for call buyers is the 785-strike, where there are 114,000 open calls. "'Sell in May and go and play' is over and advisors are getting back to work as the summer ends," Ed Rumell, head of ETFs at Corgi, said in a call. "We saw a big week in the underlying options on our buffer funds as well as big activity in SK Hynix and tech trades like our flagship photonics fund." Beaten-down semiconductor stocks jumped, with the iShares Semiconductor ETF (SOXX) advancing more than 7% on the week. The Corgi Lithography & Semiconductor Photonics ETF (EUV) added 13% in the period. Also helping the rally: The 10-year Treasury yield stopped its ascent at 4.7% S&P 500 earnings are on pace to grow 47% in the second quarter, which would be the biggest since the rebound from Covid in 2021, according to FactSet.