Wall Street’s “fear gauge” is doing something unusual. what it means

Something interesting is happening in the options market.

of S&P500 It hit a record high on Thursday morning, but CBOE Volatility Index (VIX) The S&P remains stuck at around 20 points, rising from five days ago when the S&P fell about 100 points.

In other words, stock prices rose and so did the market’s so-called fear gauge.

The VIX and S&P move together about 20% of the time, but when a “VIX up/stock price up” environment lasts for more than a few days, it means there’s likely something going on behind the scenes in the market.

One explanation is simply that investors have doubts about new highs in stocks, hedging against risks such as the Iran war and oil. If so, traders should be wary of a near-term decline in the index as realized volatility “catch up” with VIX.

A more bullish interpretation, consistent with what we see in options trading around earnings, is that traders are willing to pay expensive premiums on upside calls on individual stocks that have risen significantly, especially semiconductors and tech stocks, which are leading the rally.

total call charges of VanEck Semiconductor ETF (SMH) Despite the higher volume of the put, it is still 25% larger than the put.

Make one chip stock trade marvel technology As an example. The stock has already doubled since last month’s earnings, but one trader spent $2.4 million buying about 1,700 contracts expiring on June 18th at a $180 strike, hoping for an additional 10% rise from there.

That enthusiasm is keeping option prices high, which may help explain why the VIX has been so sticky.