Investors Bet on Volatility Comeback in 2020


⇑⇓ Today’s Stock Market Quotes ⇓⇑


A better-than-feared corporate earnings season and swinging sentiment on U.S. and China trade talks have helped lift stocks to fresh records in recent weeks, pushing volatility lower. A number of factors make next year’s outlook rockier, leading some investors to pay up for hedges that would protect against a downturn well into 2020, according to Wells Fargo Securities.

“It could be the market pricing in a ’Phase 1 trade deal’ event (either the signing of, or postponement/cancellation of) at some uncertain point in the near future, or it could be the residual memory of the Q4 selloff last year,” wrote Pravit Chintawongvanich, an equity derivatives strategist at the firm in a note Friday.

Markets were calm until late last year, before spiraling into a selloff that dragged the S&P 500 into negative territory for the year.

The sentiment is evident in an options measure called skew, which gauges how expensive it is to buy bearish put options versus bullish call options expiring six months from now. The measure is near its highest level of the past five years, the firm said.



Put options give the right to sell shares at a specific price, later in time. Calls give the right to buy stock at a designated price. “The market also seems to think things will pick up in the new year,” wrote Mr. Chintawongvanich.

The higher volatility would be a sharp shift. The Dow Jones Industrial Average finished unchanged for only the third time since 2000 last week. The Cboe Volatility Index, an options-based measure of market swings, hit the lowest level since April this month.









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  2. Investors Bet on Volatility Comeback in 2020 via /r/economy | Chet Wang

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