In just ten trading sessions, market sentiment has dramatically reversed from panic selling to enthusiastic buying.

As the massive, nearly $2 trillion IPO from SpaceX (SPCX.US) was smoothly digested by the market, the VIX volatility index has plunged from its highs to below 16, with capital flooding back into risk assets. This historic IPO, far from draining market liquidity, has acted as a catalyst for the rally—U.S. stocks strengthened across the board, the semiconductor sector hit new highs, and heavy trading in VIX put options suggests the market is betting on further declines in volatility.

Plunge in the Fear Gauge

Just ten days ago, tech stocks were in freefall, with U.S. markets experiencing their worst single-day performance since October 2025. The Cboe Volatility Index (VIX), Wall Street's premier "fear gauge," spiked rapidly, breaching the 20 level, partly due to investor concerns over the market's ability to absorb the impact of the colossal SpaceX IPO.

Now, with the largest-ever IPO being absorbed smoothly and without disruption, investors are rushing back into the stocks they previously sold. The Wall Street fear index has fallen back below its long-term average, with the VIX dropping below 16 during Monday's session.

Ed Tom, Senior Director of Derivatives Market Intelligence at Cboe, noted in a client report, "While the S&P 500 only gained 0.7% last week, the VIX fell much more than expected, primarily due to a large-scale unwinding of protective hedges and downside convexity positions for the next 12 months." In other words, the "insurance" previously purchased to guard against a market crash is being removed en masse, with capital flowing back into risk assets.

Catalyst for the Reversal

The core catalyst for this sentiment reversal is the historic IPO of SpaceX. The offering set a new record, with traders absorbing nearly $2 trillion in new stock issuance. SpaceX shares rose another 13% on Monday, pushing its market value close to $2.5 trillion, surpassing Saudi Aramco to become the world's third-largest listed company by market cap, behind only Apple and Nvidia.

Investors had widely feared that such a massive supply of new shares would drain market liquidity and pressure tech valuations. The opposite occurred—the IPO landed smoothly, causing no disruption and instead igniting stronger buying interest. Skeptics who claimed speculative capital was exhausted have been silenced by the nearly $2.5 trillion valuation, forcing short sellers to cover their positions and further propelling the indices higher.

Driven by the smooth absorption of the SpaceX IPO, all three major U.S. stock indices strengthened on Monday. The Nasdaq 100 Index led the gains, surging 3%. The S&P 500 Index rose about 1.7%, approaching the all-time high set earlier this month. The VanEck Semiconductor ETF (SMH) soared over 4%, hitting a new record high and fully recovering its more than 10% decline since June 5th.

Trading Activity Suggests Bullish Outlook

While options flow for chip stocks still shows significant hedging activity, trading around the VIX points to a more bullish equity outlook. Data from ThinkOrSwim shows that on Monday, VIX put option volume exceeded call volume, with call selling nearly matching buying. SpotGamma data indicates that of the $93 million in premium traded, over $70 million was related to put options. The most active contract was the 16-strike put expiring Wednesday, with 46,000 contracts traded. This signals the market is collectively betting that "volatility will continue to fall," a typical setup for a bullish stock market view.

For SMH, options flow has been skewed bearish for weeks, even as the semiconductor sector hits new highs. With the unprecedented weighting of semiconductors in stock indices, the severe volatility this month may have prompted investors to pay a higher price for protection. Although about 60% of SMH's premium is concentrated in put options, there has also been significant selling of put spreads in the market. This includes the day's largest trader, who profited $5 million by selling two large July 17th put spreads and then spent $2.7 million to buy a 600/550 put spread expiring the same day.

Notably, options traders will welcome a new product on Tuesday—SpaceX options will officially begin trading. Historically, Tesla options have long been a favorite among retail traders, consistently ranking among the most active single-stock derivatives. The market widely expects that SpaceX options could replicate this popularity, becoming a new battleground for volatility trading and leveraged speculation.