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The rise in bullish bets could help push stocks higher, as $2.4 trillion in options are set to expire on Friday.


Published: November 16, 2023 at 4:41 p.m. ET

Traders piled up call options linked to exchange-traded funds of popular U.S. stocks as U.S. stocks rallied following Tuesday’s consumer price index release.

That could help push stocks even higher in the coming days, options market strategists said.

Options tied to $2.4 trillion in stocks, exchange-traded funds and stock indexes…

Traders piled up call options linked to exchange-traded funds of popular U.S. stocks as U.S. stocks rallied following Tuesday’s consumer price index release.

That could help push stocks even higher in the coming days, options market strategists said.

Options tied to $2.4 trillion in stocks, exchange-traded funds and stock indices are set to expire Friday, according to data compiled by Rocky Fishman, founder of Asym50, a U.S. market analytics provider options.

A chart from a team of Goldman Sachs Group analysts showed that purchases of call options tied to popular exchange-traded funds that track indexes exploded this week, driving the ratio of outstanding calls to put options linked to SPDR S&P 500 ETF Trust SPY, Invesco QQQ. The QQQ ETF and the iShares Russell 2000 IWM ETF will sink as traders abandon puts and pile up calls. This ratio is generally called “bias” in Wall Street parlance.

Notably, due to a bias toward IWM-related calls, the ETF that tracks the Russell 2000, a popular index of small-cap stocks, sank to its lowest level on record, according to data from Goldman, signaling unbridled optimism in a previously unloved corner of the market. walk

Brent Kochuba, founder of SpotGamma, a provider of data and analytics to the options market, told MarketWatch that the shift in small-cap tilt has been “super interesting.”

See: Options traders are jumping into bullish bets on small-cap stocks at a record pace.

With about a third of IWM-related calls set to expire on Friday, some of the momentum that has pushed small caps higher over the past two weeks could fade if traders choose not to roll over their calls. positions.

But the rise in demand could also be a sign that more traders will rush into small caps in the hope that they will continue to rise, as segments of the U.S. market that have lagged Big Tech all along year continue to catch up.

Call options represent bullish bets on an underlying security or index. Put options represent the opposite. Options can be used to speculate on the direction of the market or to hedge an investor’s portfolio.

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