Stock prices have reached fresh all-time highs, but the real action is happening in the options market. The volume of volatility has surged, with spot volatility and fixed-strike vols both up. This is a stark contrast to yesterday’s crush in NDX vol, which led to a reversal in the market. The bid for options across tenors was broad, indicating a strong appetite for protection from potential pullbacks.

The GS desk has identified SPX and QQQ puts as attractive protection against a pullback from all-time highs, with VIX calls also seeing buying pressure that pushed vol-of-vol higher. This increased demand for options is a sign of caution in the market, despite the overall optimism in equities.

The flattening of skew across the surface is also notable, as it suggests a decrease in the premium for holding volatility positions. This could make puts and calls more attractive to investors looking for protection against potential market downturns.