Traders pile on defensive options as COVID-19 fear returns – Community News
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Traders pile on defensive options as COVID-19 fear returns

Global indices are displayed on a screen on the trading floor of the New York Stock Exchange (NYSE) in Manhattan, New York City, US, Aug. 19, 2021. REUTERS/Andrew Kelly

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NEW YORK, Nov. 26 (Reuters) – Rising volatility on Wall Street over concerns about a new coronavirus variant identified in South Africa caused investors to scramble into defensive options games on Friday, pushing Wall Street’s most followed fear meter to over two-month high.

The Cboe volatility index rose 8.37 points to 26.95, its highest since Sept. 20, as the S&P 500 index fell 1.9%, with travel, banking and commodity-related stocks bearing the brunt of the sell-off triggered by the discovery of a new and possibly vaccine-resistant coronavirus variant. read more

It was the largest one-day jump the VIX had made since January 27.

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Options traders loaded up on bets that offset further market declines, with puts on the S&P 500 Index (.SPX) and the tracking Exchange Traded Fund (ETF) (SPY.P) registering heavy volumes.

Puts give the right to sell shares in the future at a fixed price and are generally used to hedge against a fall in share prices. Calls give the right to buy shares in the future at the given price and are usually used to place bullish bets.

On the S&P 500 index, calls were 2-to-1 in number, the largest margin in about six weeks, according to data from options analysis firm Trade Alert. SPY put options trading was also elevated.

“Risk out, hedges up seems to be the sentiment,” said Seth Golden, chief market strategist at investment research firm Finom Group.

The wave of volatility follows weeks of relatively quiescent trading as the S&P 500 marched to record highs, with equities seemingly shrugging off concerns about rising inflation that could prompt the Federal Reserve to normalize monetary policy at a faster-than-expected pace. .

Steve Sosnick, chief strategist at Interactive Brokers, believes the severity of Friday’s sell-off may have been exacerbated by investors phasing out “one-way bets” because they felt there was little alternative to stocks.

“These kinds of setups have an annoying way of backing up quickly,” he said.

Andrew Thrasher, portfolio manager for The Financial Enhancement Group, was concerned about recent gains in a handful of technology stocks with disproportionate weights in the S&P 500, including Apple Inc (AAPL.O), Amazon.com (AMZN.O), Microsoft Corp ( MSFT.O) masked weakness in the broader market.

“This exposed sellers to push the markets down and the latest COVID news seems to have fueled that bearish flame,” he said.

The VIX index is still well below its all-time high of 82.69, reached during the market sell-off in March 2020.

A VIX of around 45-50 would be “almost panicked,” said Ophir Gottlieb, chief executive of Los Angeles-based Capital Market Laboratories.

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Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Marguerita Choy

Our Standards: The Thomson Reuters Trust Principles.