Options Market Proves Reason for Stock Rally – What Does This Mean for the Market?

Options Market Proves Reason for Stock Rally – What Does This Mean for the Market?

According to a report by www.boerse-online.de, stocks have risen massively in the last week, with many investors convinced that this rally is due to the Fed's interest rate decision. However, there could be a completely different reason behind it, as an analysis by Michael Kramer from Mott Capital suggests. According to him, the options market triggered a so-called gamma squeeze due to a crash in Treasury interest rates, making stocks much more attractive. This strong demand led to a short squeeze in the government bond market, which in turn caused stock prices to rise.

This development could have long-term effects on the market. Last week's rally may not have been the start of the year-end rally, as falling Treasury yields are unlikely to return very quickly and many short sellers may have exited the market. As a result, there could be a slight correction in the markets this week, followed by lower volatility. After this point, it becomes uncertain what will happen next, as the duel between bulls and bears as well as the current narratives will decide the course of stock market events. It therefore remains to be seen how the markets will develop in the coming weeks.