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Avalanche of Options Trades Fuels Market Pullback - The Wall Street Journal
Jun 18, 2021 1 min, 15 secs

Heavy options activity is amplifying this week’s frantic investor retreat from bets on stronger economic growth.

The stock-market volatility coincided with a rush of options activity, with more than 116 million options contracts set to expire on Friday, according to Cboe Global Markets data, the second-highest level ever after Jan.

15, when more than 150 million contracts were expiring.

said Friday that the central bank could tighten policy as soon as next year.

Friday’s swings coincided with a surge in options activity tied to single-stock and index options simultaneously expiring.

Many investors had turned to selling options in a wager that stocks would continue their ascent and volatility would edge lower, in what is known as shorting volatility.

That led to the steady accumulation of options that were set to expire on Friday and contributed to the calm in markets in recent weeks, traders said.

Shorting volatility by selling options or through risky exchange-traded funds was a wildly popular trade before the pandemic-induced market crash, though it backfired as the bull market ended last year, tempering enthusiasm for the trade.

senior portfolio manager at Capstone Investment Advisors, estimates that roughly 40% to 50% of the short volatility wagers that dominated the market ahead of the pandemic had returned recently.

That limited volatility in markets ahead of Friday, and potentially exacerbated Friday’s stock-market move as a large chunk of options expired, traders said.

global head of options at Northern Trust Capital Markets, referring to the simultaneous expiration of several different types of options.

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