In the wake of the recent U.S. elections, options traders have adopted a more aggressive stance, fueling a notable rally in the stock market. The dissipation of election-related volatility concerns, bolstered by the anticipated Republican control of both the House and Senate, has paved the way for the party’s economic policies, including tax cuts and deregulation. This optimistic sentiment has propelled the S&P 500 to a 3% increase since the November 5th vote.
Investors have shown significant interest in stocks such as Tesla, small-cap companies, and regional banks. This shift toward riskier assets is evident in the surge of daily call options volumes relative to puts, with the ratio climbing to 1.5-to-1 from a year-to-date average of 1.3-to-1. Notably, Tesla options accounted for 30% of total U.S. stock options traded on Monday.
Despite the prevailing optimism, some caution persists regarding the potential impacts of policy implementations and rising Treasury yields, which could pose challenges to stock performance. However, the volatility landscape has improved, as indicated by the decline in the Cboe Volatility Index to a near four-month low.
