The stock market opened strongly on Tuesday, with the S&P 500 gaining nearly six percent over four days, breaking out of a two-month range that had many investors concerned. The Nasdaq-100 index surged by 3.3% to 29,733, nearing its June record, as traders rushed to cover short positions and buy call options.
Notably, the price of out-of-the-money QQQ calls surged by 42%, marking the largest single-day increase in volatility pricing for these contracts in five years. Scott Nations, president of Nations Indexes, described the day as one of the ten most bullish for the Nasdaq-100 in the last decade.
Increased options activity in both the Nasdaq and S&P 500 reflects heightened investor engagement, particularly following strong earnings reports and stabilization after the Federal Open Market Committee (FOMC) meeting. The S&P 500 is projected to see a 47% earnings growth in the second quarter, the highest since the post-COVID rebound in 2021, with current valuations appearing reasonable.
Additionally, a decline in Treasury yields and crude oil prices contributed to the positive market sentiment. Overall, the rally suggests a shift in investor psychology, moving from bearish to bullish as they reconcile strong earnings growth with market valuations