May Volatility Expected to Subside, Institutions Position for Longer-Term Downside

The surprisingly cooler U.S. April jobs report stoked hopes for an earlier start to Fed rate cuts, sending the VIX fear gauge to a one-month low and pushing Treasury yields lower. Apple rallied nearly 6%, leading tech stocks higher.

Options market data suggested expectations for reduced volatility in the S&P 500 near-term, with a sideways bias this week and potential for the index to finish Friday below 509. QQQ saw continued buying of longer-dated downside protection. For small-caps, Russell 2000 options positioned for a range-bound move, with expectations for the index to trade between 194-210 into June.

Details:

The $SPDR S&P 500 ETF Trust(SPY)$ options overall reflected a bullish trading sentiment, with sellers of put options dominating. Open call interest declined -5.5% over the past 5 days. Open put contracts fell -2.0% over the same period.

For call options, investors' largest opening position was the $SPY 20240510 515.0 CALL$  with a 515 strike, adding 23,000 contracts as part of a call spread with the $SPY 20240510 509.0 CALL$ . This implies expectations for the S&P 500 ETF to finish below 509 by May 10 expiration.

The most sold put option was the $SPY 20240621 485.0 PUT$  with a 485 strike, adding 38,000 contracts. This suggests expectations for a decline of up to 5% in the S&P 500 ETF by June 21 expiration.

The $Invesco QQQ(QQQ)$ options overall showed a bullish trading sentiment, with buyers of put options dominating. Open call interest increased 2.1% over the past 5 days. Open put contracts grew 1.9% over the same period.

For call options, the most actively traded was the $QQQ 20240531 470.0 CALL$  with a 470 strike, adding 9,437 contracts.

For put options, investors sold the most new $QQQ 20240816 350.0 PUT$  with a 350 strike, adding 9,717 contracts as part of a put spread with the $QQQ 20240816 380.0 PUT$ . This implies expectations for a 12.6% decline in QQQ by August 16 expiration.

The $iShares Russell 2000 ETF(IWM)$ options overall reflected a bearish trading sentiment, with sellers of put options dominating. Open call interest grew 4.7% over the past 5 days, while open put contracts increased 3.6% over the same period.

For call options, investors sold the most $IWM 20240621 210.0 CALL$  with a 210 strike, adding 8,467 contracts. This implies expectations for gains in IWM to be capped below 4.5% by June 21.

For put options, investors heavily bought the $IWM 20240621 192.0 PUT$  with a 192 strike, adding 80,000 contracts as part of a put spread with the $IWM 20240621 194.0 PUT$ . This signals expectations for IWM to remain in a 194-210 range, with downside limited to 3.4% by June 21 expiration.