The Cboe VIX Index, a key measure of market volatility, rose to 18 on Monday, with options trading on the index more than doubling its 30-day average volume. This surge was driven by declines in semiconductor and data-center stocks, which weighed on the S&P 500 Index.
The increase in volatility comes amid ongoing discussions among tech leaders and politicians about the pace of AI development, raising concerns that it may be advancing too quickly. Notably, traders are showing a preference for call options, with significant purchases, including a $3.6 million bet on 31-strike calls expiring in mid-November.
In contrast, the previous Friday saw the VIX drop despite rising inflation data, which heightened expectations for a Federal Reserve interest rate hike. John Marshall from Carrick Lane noted that the market seems to be more focused on AI developments rather than interest rate risks, suggesting that investors believe the benefits of AI are immediate rather than a distant prospect.
Meanwhile, the Merrill Lynch Option Volatility Estimate (MOVE) Index, which measures Treasury volatility, reached a high percentile, indicating that while interest rate volatility is present, it is not currently influencing stock prices.
As of midday Monday, the likelihood of a rate hike at the upcoming Federal Reserve meeting had risen to over 91%, yet equity prices remained stable, reflecting a complex interplay between AI risks and interest rate expectations