Report Date: September 30, 2025
September 2025 was one of those months where the options market told a different story than the headlines. While everyone was obsessing over the Fed’s rate cut, the real action was happening in the volume numbers and sector rotation that most people missed.
Let me break down what actually happened, and what it means for October.
The Big Picture: Record Volume Meets Declining Volatility
Here’s the paradox that defined September: SPX options hit a record volume month, averaging 4.26 million contracts per day, while market volatility remained subdued for most of the month. Think about that for a second. More people trading options than ever before, but the VIX spent most of September in the mid-teens.
What does that tell us? Institutional players and sophisticated traders are hedging aggressively even when the market looks calm on the surface. They’re not panicking, they’re preparing.
Volume Breakdown: The 0DTE Dominance Continues (But Shifts)
Zero-day-to-expiration (0DTE) options remained dominant, comprising 60% of total SPX volume, though this actually represented a decline from the previous month as longer-dated options grew faster. This is significant.
When longer-dated options start growing faster than 0DTE, it usually means:
- Traders are looking beyond the immediate term
- Volatility expectations for the future are increasing
- People are positioning for larger moves down the road
I’ve been trading long enough to know that when the smart money starts buying time, they’re expecting something to happen, they just don’t know exactly when.
Market Share Wars: SPX Crushes the Competition
SPX options reached a record 74% market share compared to other S&P 500 linked derivatives like E-mini options and SPY options, up from 58% share in 2020. This is a massive shift that’s been building for years but really accelerated this year.
Why does this matter? SPX options have European-style settlement and favorable tax treatment (60/40 long-term/short-term split). The migration toward SPX tells us retail and institutional traders alike are getting more sophisticated about tax efficiency and settlement risk.
The Volatility Story: Calm Before the Storm?
September was fascinating from a volatility perspective. The VIX remained relatively low through most of September, with the front-month futures trading at only a slight premium to the cash index, while October futures showed a significant 2.2% premium, an extreme level by historical standards.
Translation: the market was pricing in tranquility for September (which we got) but expecting potential turbulence for October.
And you know what? The September VIX futures expired the same day as the Fed meeting. Coincidence? Absolutely not. Traders were betting the Fed would deliver exactly what was expected, which it did, and then volatility would return afterward.
The Fed Meeting: Predictable, But Still Impactful
The Fed cut rates by 0.25% in September, bringing the target rate to 4.00%-4.25%, and the decision had broad support despite some concerns about economic conditions. This was the widely expected move, but here’s what the options market was really pricing in: not the cut itself, but what comes after.
Looking at options pricing around the Fed meeting, implied volatility actually declined in the days leading up to the announcement and then spiked afterward as traders repositioned. That post-Fed volatility pickup? That’s what October futures were predicting all along.
Sector-by-Sector: Where the Real Money Moved
Tech: The Divergence Continues
September was a tale of two tech markets. Communications Services led sectors with strong year-to-date performance of 17.21%, while the broader market saw 310 issues gain and 193 decline.
But here’s what the options volume was telling us: traders were increasingly hedging individual tech names rather than buying broad tech exposure. NVDA, AAPL, and TSLA options all saw elevated activity, but in very different ways.
NVIDIA options: Massive volume in both directions. Call volume was strong, but so were puts. The spread between near-month and longer-dated IV widened significantly, suggesting uncertainty about near-term earnings but confidence in the longer-term AI story.
Apple options: Surprisingly elevated call activity into month-end. The iPhone 17 launch speculation and reports of strong demand drove this. ATM calls for November expiration saw heavy accumulation, suggesting traders were positioning for a continued rally into earnings season.
Tesla options: Wild swings in implied volatility. TSLA has basically become a volatility product at this point. The robotaxi narrative and Optimus robot news kept call buyers active, but skeptics were loading up on puts. The options market couldn’t decide if TSLA is a $200 stock or a $600 stock.
Materials and Utilities: The Surprise Movers
Materials did best for the month, adding 5.59% and up 10.27% year-to-date, while Utilities did the worst, falling 2.03% for the month. The options action in Materials was particularly interesting, lots of call buying in names exposed to infrastructure spending and the ongoing tariff situation.
Utilities options saw increased put volume as rate cut expectations diminished. When the market thinks rates might not come down as fast as hoped, high-dividend sectors get sold. The options market sniffed this out before the equity moves happened.
What the Volume Told Us (That Price Didn’t)
September 2025 was the third-highest volume month on record for total U.S. equity options. But here’s the detail most people missed: the put/call ratio stayed elevated even as the market grinded higher.
Throughout September, the put/call ratio averaged around 0.85-0.95, higher than you’d expect given that the S&P 500 was making new highs. That persistent put buying? It’s either:
- Smart hedging by people worried about October
- Professional traders rolling protection forward
- A warning sign that confidence isn’t as high as the index level suggests
I’m betting it’s all three.
Earnings Season Setup: The Quiet Accumulation
As September ended, something interesting happened in the options market: implied volatility for October and November expirations started climbing, particularly in the Magnificent 7 stocks.
The market was pricing in bigger moves for the upcoming Q3 earnings reports than it did for Q2. Why? Because the bar has been raised. The market expects these companies to not just beat, they need to blow out estimates and raise guidance. Anything less, and we could see 5-10% moves to the downside.
The options market was telling us this a full two weeks before earnings season even started.
Implied Volatility Trends: The Term Structure Tells the Story
September’s volatility term structure was abnormal. Normally, you’d see a smooth upward slope, longer-dated options cost more than near-term. But in September, we saw a bump in the 30-60 day range (covering late October through mid-November) before the curve flattened out.
That bump? It’s the market pricing in event risk: earnings season, potential government shutdown negotiations, and ongoing tariff uncertainty. The professional options market was essentially saying “we think October/November will be spicy, but things should calm down by December.”
Regional and Index Comparison
SPX vs SPY: The spread in implied volatility between SPX and SPY options narrowed in September, but SPX continued to dominate volume. The migration is complete, SPX is now the vehicle of choice for index options trading.
Russell 2000 (RUT): Small-cap options saw muted activity. The lack of interest in RUT options suggests traders aren’t expecting a major rotation into small caps despite the Fed cutting rates. That’s usually bullish for large caps but raises questions about the health of the broader market.
Nasdaq-100 (NDX): Tech-heavy NDX options saw healthy volume, but interestingly, more of it was coming from spreads rather than outright directional bets. Credit spreads and iron condors dominated, suggesting traders think tech will stay rangebound near term.
What It All Means for October
If I were to sum up what the September options market is telling us about October in one sentence: expect more volatility, but not necessarily a directional market.
Here’s what the smart money seems to be positioned for:
- Elevated volatility around earnings reports (priced in)
- Potential government shutdown causing brief spikes (partially priced in)
- Continued sector rotation (not fully priced in)
- Range-bound market with explosive short-term moves (this is what the options positioning suggests)
The one thing that would surprise the market based on September’s positioning? A strong, sustained breakout to new highs without significant pullbacks. The amount of hedging activity suggests people don’t believe in a melt-up scenario.
Key Takeaways for Traders
For options buyers: September showed us that premiums are expensive relative to realized volatility. If you’re buying options in October, make sure you have a strong directional thesis because you’re paying up for that convexity.
For options sellers: The elevated IV in the 30-60 day window creates opportunities for credit spreads and iron condors, especially after earnings announcements when IV crushes. But size carefully, when volatility does spike, it can spike hard.
For long-term investors: The persistent put buying and elevated term structure in the face of market highs suggests the smart money is worried. Not panicking, but worried. Having some portfolio protection going into October makes sense.
Looking Ahead: Key Dates for October
- October 2-4: Major tech earnings (exact dates TBD)
- October 28-29: Next Fed meeting (no cut expected, but guidance will matter)
- Late October: Potential government funding issues if shutdown isn’t resolved
Mark these dates. The options market is already pricing them in, and you should be prepared too.
Final Thoughts
September 2025 will be remembered as the month when record options volume collided with declining realized volatility. It was a month of positioning more than action, preparation more than execution.
The options market is the most forward-looking market there is. And right now, it’s telling us that while September was calm, October is unlikely to be. The volume patterns, the term structure, the sector rotation in options activity, all of it points to a more volatile, more uncertain month ahead.
Don’t fight what the options market is telling you. Listen to the volume, watch the volatility structure, and position accordingly.
See you in the October report.
Data sources: CBOE market statistics, public market data, and aggregate volume reports. This report is for educational purposes and does not constitute investment advice. Options trading involves substantial risk and is not suitable for all investors.