Home SPY S&P500 ETF Stock options bets on volatility around macro events are finally paying off

Stock options bets on volatility around macro events are finally paying off

by Hataf Finance
8 minutes read


A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., October 27, 2023. REUTERS/Brendan McDermid/File Photo Acquire Licensing Rights

NEW YORK, Nov 1 (Reuters) – Options traders betting that Wednesday’s Federal Reserve meeting and highly anticipated macroeconomic events later this week could cause gyrations in markets may be rewarded, if recent trends hold.

Data from Susquehanna Financial Group showed that using options to bet on volatility around key macroeconomic news events has started paying off in recent weeks, after a months-long period of muted moves.

In nine out of 10 instances, stock market moves after events such as Fed meetings and key data releases in the period from early June to mid-September fell short of the volatility priced in the options market, Susquehanna’s analysis showed.

That trend changed with the September Fed meeting and September jobs report, published in early October, which produced larger-than-expected reactions in the stock market, Susquehanna data showed.

The firm’s analysis focused on investors buying straddles on the SPDR S&P 500 ETF Trust (SPY.P) – a bet on volatility that involves the simultaneous purchase of call and put options with the same expiration.

“While owning that volatility more lately has by no means been a home run, at least the streak of underperforming event moves has come to an end, with a few of the most recent moves actually outpacing the straddle,” Christopher Jacobson, a strategist at Susquehanna Financial Group, said in a note on Wednesday.

“Against that backdrop, we believe the setup for owning that macro volatility into this week’s remaining events has become more attractive,” he said.

SPY options are pricing a 1.4% move for the ETF’s shares between now and the close of trading on Friday, with traders on watch for some major catalysts that could potentially move markets including Wednesday’s Fed policy decision, Apple’s (AAPL.O) quarterly results on Thursday and a nonfarm payrolls report due on Friday.

Recent weeks have seen volatility rise in broader markets, with the Cboe Volatility Index (.VIX), known as Wall Street’s fear gauge, hitting its highest level since March amid geopolitical worries and a surge in U.S. Treasury yields that has weighed on stocks.

Reporting by Saqib Iqbal Ahmed Editing by Ira Iosebashvili and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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