2023-11-01 15:59:02
Options traders who bet that Wednesday’s Federal Reserve meeting and this week’s highly anticipated macroeconomic events could cause market swings could be rewarded, if recent trends hold true.
Data from Susquehanna Financial Group shows that using options to bet on volatility around key macroeconomic events has started to pay off in recent weeks, after a months-long period of quiet moves.
In nine out of ten cases, stock market movements after events such as Fed meetings and key data releases between early June and mid-September were lower than the volatility assessed in the stock market. options, according to Susquehanna Financial Group analysis.
That trend changed with the September Fed meeting and September jobs report, released in early October, which produced larger-than-expected reactions in the stock market, according to Susquehanna data.
The firm’s analysis focused on investors who purchase straddles on the SPDR S&P 500 ETF Trust – a bet on volatility that involves the simultaneous purchase of calls and puts with the same expiry.
“While owning this volatility more recently has by no means been a home run, at least the streak of event mover underperformance has come to an end, with a few of the more recent moves surpassing actually the straddle,” Christopher Jacobson, a strategist at Susquehanna Financial Group, said in a Wednesday note.
“In this context, we believe that the setup for holding this macroeconomic volatility in the remaining events of this week has become more attractive,” he said.
SPY options are forecasting a 1.4% move for shares of the ETF by the market close on Friday, with traders on the lookout for some major catalysts that could potentially move markets, including the Fed monetary policy decision on Wednesday, Apple’s quarterly results on Thursday and the nonfarm payrolls report due on Friday.
In recent weeks, volatility has increased in the markets, with the Cboe Volatility Index, known as the gauge of fear on Wall Street, reaching its highest level since March, due to geopolitical concerns and rising U.S. Treasury yields, which weighed on stocks. (Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Mark Potter)
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