Upside Room Continues Opening, Markets Bullish for May

Investors awaited comments from Fed officials for clues on the next policy moves, after the previous day's mild inflation report fueled rate cut hopes and drove major indexes to fresh record highs.

Options market data suggested a positive view on the S&P 500 for May, though longer-dated butterflies spreads pointed to a gradual bearish shift. Upside room kept expanding in QQQ, with expectations for a 2.2% rally priced in by late May. For small-caps, bullish flows continued in the Russell 2000, with expectations for a 1.2% rally by month-end.

Details:

The $SPDR S&P 500 ETF Trust(SPY)$ saw open call interest rise 2.4% over the past 5 days. Open put contracts increased 5.6% over the same period.

For call options, investors sold the most $SPY 20240531 535.0 CALL$  with a 535 strike, adding 40,000 contracts. This implies expectations for a rally over 1.9% in SPY by May 31 expiration.

For put options, the most sold was the $SPY 20240628 410.0 PUT$  with a 410 strike, adding 200,000 contracts as part of a butterfly spread with 360 and 460 strikes. This signals expectations for SPY to remain below 528 going forward.

The $Invesco QQQ(QQQ)$ saw open call interest rise 3.8% over the past 5 days. Open put contracts increased 2.7% over the same period.

For call options, investors bought the most $QQQ 20240531 465.0 CALL$  with a 465 strike, adding 15,000 contracts. This suggests expectations for a rally over 2.2% in QQQ by May 31 expiration.

For put options, investors sold the most $QQQ 20240517 450.0 PUT$  with a 450 strike, adding 12,000 contracts.

The $iShares Russell 2000 ETF(IWM)$ saw open call interest decline 0.4% over the past 5 days, while open put contracts increased 1.4% over the same period.

For call options, investors bought the most $IWM 20240531 212.0 CALL$  with a 212 strike, adding 10,000 contracts. This implies expectations for a 1.2% rally in IWM by May 31 expiration.

For put options, investors heavily sold the $IWM 20240621 198.0 PUT$  with a 198 strike, adding 69,000 contracts. This signals expectations for IWM to hold above 198 by June 21 expiration.