CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

U S stock market calm looks skin deep

Article By: ,  Financial Analyst
November 10, 2016 12:15 PM

U.S. investors are set to continue the remarkable rebound of risk seeking on Thursday, in the wake of Donald Trump’s election victory.

Stock futures are pointing higher after the biggest surge in Japan’s Nikkei in 9 months.

Swings of the VIX Volatility Index also typify the equities roundabout.

It careered 23% lower at one point on Wednesday, and was another 4% lower at the time of writing.

Investors have calmed considerably since their clear trepidation ahead of 8th November, and the intense but short-lived sell-off after Trump’s win.

 

But there are signs that investor calm may not run so deep.

 

A check of Wednesday’s tape a little into the session showed some 130,000 VIX puts traded vs. 229,000 calls, 3 and 4 times the seasonal average according to data from Trade Alert LLC.

Some of this influx fed an unmistakeable rise in bearish expectations into the year end and first few months of 2017.

At some 430,000 the count already dwarfs 250K outstanding late in December 2015.

Even excluding deep positioning with a pessimistic tinge in the rest November—2.3 million calls; 1.4 million puts—the closing days of the year skew unmistakeably bearish.

The last expiry of the year on Wednesday 21st December holds 1.3 million calls against 660,000 puts, with volume continuing to rise as I write.

Open interest is concentrated in Dec 21 calls—almost 800,000 bets eye VIX strikes between 20 and 30.

 

With the ‘fear gauge’ at 13.5 at the time of writing, call buyers are betting on a bounce of at least 48% by VIX futures sometime between now and 21st December.

 

Can you imagine the portentous note of tension this would strike over global stock markets?

It’s little surprise that investors took out more insurance against a market rout this December than in pre-Trump December 2015.

Also bear in mind that the VIX is neither a cause of volatility nor a good predictor of how long the craziness might last.

 

Still, brisk trade in market protection tells us that post-Trump calm masks lingering anxiety.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024