Bullish Options Trades Slow amid AI Uncertainty

Summary

• The S&P options market implied a 60 to 65 basis point Fed move, lower than the roughly 75 basis points seen in previous FOMC meetings.
• The Fed committee struck a balanced tone with apprehension regarding the correlation between interest rates and the AI story, suggesting a slower pace.
• The S&P finished up on the day after the FOMC press conference, marking the first time in seven meetings this occurred.
• AI demand remains strong, but competition has intensified, leading to increased dispersion in market reactions.
• Credit market volatility has been concentrated in AI-exposed spaces, while other credit sectors remained insulated.
• AI-related credit issuance in 2026 is approximately three times higher than in 2025, creating a supply-versus-demand imbalance that has widened credit spreads.
• Retail investor option volumes are down roughly 20% compared to late June, though leveraged ETF volumes remain strong.
• Institutional clients have reduced call option buying, while put buying has increased in recent weeks, indicating nervousness about year-end outcomes.
• Implied volatility distributions are currently considered fair on both ends, presenting an opportunity to deploy capital through the options market.
• Market dispersion has evolved from a high-sharp momentum factor to a more surgical approach for implementing exposure.
• Biotech is identified as a favorable sector outside the AI space, potentially benefiting from lower rates, increased M&A, and AI-driven drug discovery.
• The recording took place on October 29, 2026, on the Goldman Sachs trading floor.