Following the successful integration of SpaceX’s record-breaking $2 trillion IPO, Wall Street’s primary fear gauge, the Cboe Volatility Index (.VIX), has declined significantly. This surge in market confidence has led traders to reinvest in stocks they had previously divested, reversing a trend of heightened volatility seen just days before. Major indices like the Nasdaq 100 and S&P 500 have seen substantial gains, with the semiconductor sector also reaching new all-time highs.
Wall Street's anxiety has significantly subsided, with its key fear gauge tumbling as traders enthusiastically embraced SpaceX's monumental $2 trillion initial public offering. Just ten days prior, the market experienced a sharp downturn, marked by the stock market's worst day since October 2025 and a surge in the Cboe Volatility Index (.VIX). This heightened volatility was partly fueled by investor apprehension regarding the market's capacity to absorb the substantial influx of new SpaceX stock.
However, with the largest IPO in history successfully integrated without significant disruption, investors are now re-engaging with previously sold-off stocks. Consequently, the market's primary indicator of fear has fallen back below its historical average.
The Nasdaq 100 Index (.NDX) surged by 3% on Monday, while the S&P 500 Index (.SPX) saw gains of approximately 1.7%, nearing its earlier monthly record high. The semiconductor sector, spearheaded by the VanEck Semiconductor ETF (SMH), also reached new all-time highs, climbing over 4%. Market participants who doubted investor appetite are now confronted with a SpaceX market capitalization approaching $2.5 trillion, with the company's shares alone rising 13% on Monday.
Ed Tom, senior director of derivatives market intelligence at Cboe, noted in a client advisory on Monday that the significant decline in the VIX index, despite a modest 0.7% weekly advance in the SPX, was largely attributed to the unwinding of protective hedges and downside convexity positions.
The VIX touched a low of below 16 on Monday, a stark contrast to the volatility spike observed on June 5 when the VanEck Semiconductor ETF (SMH) dropped over 10% from its peak. While options activity in semiconductor stocks continues to indicate substantial hedging, VIX trading suggests a more bullish outlook for the broader market.
Data from ThinkOrSwim reveals that more put options than call options were traded on the VIX on Monday, with call volume nearly matching put volume. SpotGamma data further indicates that out of $93 million in options premium traded, over $70 million was allocated to puts. The most actively traded contract was the 16-strike put expiring Wednesday, with 46,000 contracts changing hands.
Despite semiconductors reaching an all-time high, options flows in SMH have remained predominantly bearish for weeks. With stock indexes now holding a larger proportion of semiconductor stocks, this month's market volatility may be prompting investors to pay a premium for hedging strategies. While approximately 60% of SMH's options premiums were tied to puts, notable put-spread selling occurred. The day's largest trader, for instance, collected $5 million by selling two substantial put spreads expiring July 17, subsequently spending $2.7 million to acquire the 600/550 spread with the same expiration date.
Options traders are anticipating Tuesday's launch of SpaceX options, which are expected to generate significant activity. Options on Tesla have historically been a favored instrument among retail traders, consistently ranking among the most actively traded single-stock derivatives.
