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Volume of options traded on the S&P 500 hits a record high; Indications of a market bottom?

Volume of options traded on the S&P 500 hits a record high; Indications of a market bottom
Dino Kurbegovic

As traders shook off another bad inflation reading on October 13, the markets staged a solid comeback after the trading day started poorly for all major stock indexes. Dow Jones, S&P 500, and Nasdaq all finished the day in green, up 2.83%, 2.60%, and 2.23%, respectively. 

The reversal in the S&P 500 seen yesterday marked the fifth-largest intraday reversal from a low into a green day and the fourth-largest reversal for the Nasdaq.  

Furthermore, Christophe Barraud, Bloomberg’s top forecaster, pointed to yesterday’s options trading on the S&P 500, which reached a record high, surpassing 3.8 million options.  

S&P 500 options traded. Source: Twitter

Is the bottom in?

Judging by the number of options contracts and the historical significance of such high numbers, market participants would be right to speculate whether the bottom in the stock market has finally been reached. 

Meanwhile, to get a better picture, the volatility index (VIX) should also be analyzed in the historical setting to get a broader picture of where the markets could be headed. 

Rebound leaders

Gains in the energy and banking sector led the rebound yesterday, with reversals seen in big tech names, which pushed up semiconductor stocks as well. All of this pointed to the fact that market participants could be betting on a market reversal. 

Bulls may be vindicated as Q3 earnings reports will be coming out during the next few weeks from large to small companies; on the other hand, if corporate earnings fall on their face, stocks may follow. 

Stubborn inflation will require the Federal Reserve (Fed) to remain aggressive to cool off price increases, which in turn may decrease corporate profits. But those effects may be evident only in Q4 or even Q1 2023; until then, eyeing Q3 2022 earnings may make a lot of sense for the bulls. 

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