Wall Street’s ‘fear gauge,’ the Cboe Volatility Index (VIX), has plunged below its long-term average, signaling a strong return of investor confidence after the successful digestion of SpaceX’s massive $2 trillion initial public offering. Following a period of market anxiety, the record-breaking IPO has seemingly reassured traders, leading to a rebound in tech stocks and significant gains for SpaceX shares and major indices.
There's nothing quite like traders eagerly acquiring $2 trillion in new equity to thoroughly extinguish market fear. The Cboe Volatility Index (VIX), often dubbed Wall Street's 'fear gauge,' has taken a significant tumble, signaling a robust return of investor confidence.
Just ten days ago, the atmosphere was dramatically different: the tech sector was in a steep decline, and the stock market had endured its worst day since October 2025. During that period of heightened anxiety, the VIX had surged rapidly, partly fueled by investor concerns about the market's capacity to absorb the colossal deluge of new SpaceX stock. Now, with the largest initial public offering in history successfully digested without a hitch, investors are enthusiastically piling back into the very same stocks they had previously sold. Consequently, the VIX has retreated below its long-term average, reflecting a palpable sense of calm returning to the markets.
This past Monday exemplified the renewed optimism. The Nasdaq 100 jumped a remarkable 3%, while the S&P 500 saw an increase of approximately 1.7%, nearing the record high achieved earlier in the month. The semiconductor sector led the charge once again, adding over 4% to reach a new all-time high. Market skeptics who had argued that speculative appetites were waning are now faced with SpaceX's staggering market capitalization of almost $2.5 trillion, a figure that strongly contradicts their bearish stance. SpaceX shares themselves surged 13% on Monday.
Ed Tom, senior director of derivatives market intelligence at Cboe, noted in a Monday client communication, "Although the SPX Index advanced by a modest 0.7% last week, the VIX Index declined far greater than expected due in large part to the unwind of protective near the money hedges and downside convexity positions."
The VIX traded below 16 at its lowest point on Monday, marking a complete reversal of the volatility spike that began on June 5. That earlier surge coincided with the VanEck Semiconductor ETF (SMH) experiencing a more than 10% drop from its record. While options flows in chip stocks still reveal significant hedging activity, the overall trading patterns around the VIX suggest a more bullish outlook for equity markets.
On Monday, VIX options saw more puts traded than calls, with nearly as many calls sold as bought, according to data from ThinkOrSwim. Of the $93 million in options premium traded, over $70 million was attributed to puts, as reported by SpotGamma. The most popular contract by volume was the 16-strike put expiring on Wednesday, which saw 46,000 contracts traded.
In contrast, options flows for SMH continued their bearish inclination, a trend consistent for several weeks, despite semiconductors achieving an all-time high. With stock indexes now holding a greater proportion of semiconductors than ever before, this month's market whipsaw might be compelling investors to pay a premium for hedges. Although roughly 60% of premiums in SMH were in puts, notable put-spread selling activity was observed. This included the day's largest trader, who collected $5 million from selling two substantial put spreads expiring on July 17, and subsequently invested $2.7 million to establish a long 600/550 spread with the same expiry.
Options traders should anticipate further significant activity on Tuesday, when SpaceX options are scheduled to list. Options in Tesla have long been a favorite among retail traders and consistently rank among the most active single-stock derivatives.
An interactive chart from CNBC illustrates the Cboe Volatility Index in the past month, clearly showing its recent decline.
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