On Wednesday, U.S. stocks fell sharply as renewed selling pressure in the tech sector pulled all major indexes down after an initial rally attempt. This decline has led traders to question the extent of potential losses, especially following a notable rally in AI stocks that is now facing challenges.
According to options-market data from ThinkOrSwim, the S&P 500 is pricing in a 10.5% chance of closing at a bear market level of 6,088 by August 31, with the likelihood of touching that price being approximately 21%. For the Nasdaq 100, the odds of reaching a similar decline are even higher at 32%.
Scott Bauer, CEO of Prosper Trading Academy, noted that the volatility in individual stocks is impacting the Nasdaq more significantly, suggesting a strategy of selling Nasdaq volatility while buying S&P volatility. The implied volatility for the Nasdaq 100 stands at nearly 33, compared to 22 for the S&P 500, indicating greater uncertainty in the tech-heavy index.
Small-cap stocks, represented by the Russell 2000, show a 30-day implied volatility of 29, with a 24% chance of experiencing a 20% loss by the end of August. This situation echoes the last technical bear market in the S&P 500, which lasted about ten months amid rising interest rates in 2022, highlighting the current market's sensitivity to economic conditions