Equity options market bracing for a volatility shock - Bloomberg


Options market is signaling that traders are positioning for a news bomb to roil the US markets, according to Bloomberg. 

The downside options that expire within the next week to 30 days have become pricey and the market is pricing in heightened risk of a big move in the near term, said Pravit Chintawongvanich, Wells Fargo’s equity derivatives strategist.

Key quotes (Souce: Bloomberg)

Based on how little U.S. stocks have been gyrating and their proximity to all-time highs, he reckons the Cboe Volatility Index is two standard deviations higher than it would be under normal conditions.

volatility bets of this magnitude previously indicated there was an event looming, as happened before the Brexit vote and U.S. presidential elections, or a volatility spike had just occurred.

Deutsche Bank and LPL Financial have also warned investors about the possibility of a spike in the stock market volatility. The Japanese Yen sellers need to observe caution, as the stock market volatility usually spikes during sell-offs and the anti-risk Yen almost always catches a bid during risk aversion

 

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