Volatility Falls as Traders Rotate from Tech to Housing and Solar

Financial markets reacted sharply to the midterm election results, triggering a sell-off in volatility and a rotation away from large technology stocks. This shift in sentiment was evident in options markets, where traders moved capital into housing and solar energy sectors.

The S&P 500 rose nearly 2% by midday on Wednesday, erasing losses from the previous Friday and Monday. The Cboe Volatility Index fell by approximately four points to a level below 17. This represented the largest one-day drop in the gauge since at least July. The decline in volatility coincided with a drop in crude oil prices, with West Texas Intermediate trading below $90.

Energy stocks declined by 5.6%, marking the largest drop within the S&P 500. Options volume for the State Street Energy Select Sector SPDR ETF, or XLE, tripled its 30-day average. Puts accounted for 57% of the volume, with large bearish positions concentrated in the 62.5-strike put expiring on January 15. SpotGamma data indicated this trade signaled a potential slowdown for the best-performing sector of 2026.

While energy fell, solar energy stocks rallied. The Invesco Solar ETF, or TAN, gained 9% to reach its highest level since July. Options activity in TAN exceeded five times the average, with 80% of the volume in calls. The most popular contract was the 48-strike call, which bet on a 6% increase through November 20.

Housing-related equities also saw increased bullish sentiment. Rocket Companies, the mortgage lender and owner of Redfin, experienced a surge in options activity. The stock had fallen almost 50% earlier this year before reversing course in the previous month. Options volume for Rocket doubled the average, with 90% of the 110,000 contracts traded being calls. The 14 and 16-strike calls expiring on November 20 were the most heavily traded contracts.

Consumer discretionary stocks rose nearly 5%, but options volume for the SPDR sector fund, or XLY, remained below average. Volume was split evenly between puts and calls according to Cboe LiveVol data. In contrast, semiconductor stocks faced bearish pressure. The VanEck Semiconductor ETF, or SMH, dropped 2.6% to its lowest level since May. Options volume doubled the average, with 70% consisting of puts, led by the 475-strike put expiring on November 13.

The trading activity reflected a clear departure from previous trends. Investors reduced exposure to high-volatility technology positions while increasing bets on sectors perceived as benefiting from lower inflation and interest rate expectations. The concentration of large trades in specific strike prices and expirations highlighted the directional views held by market participants on Wednesday.