Some options data reflects views of looming volatility – Goldman


Dividers are seen inside a trading post on the trading floor as preparations are made for the return to trading on the New York Stock Exchange (NYSE) in New York, United States on May 22 2020. REUTERS / Brendan McDermid / File Photo

NEW YORK, June 25 (Reuters) – As major U.S. stock indexes hit new highs, options data suggests traders view the market vulnerable to a steep decline if bears gain the upper hand, strategists at Goldman Sachs.

The apparent calm in the stock market masks heightened expectations of large stock market swings over the next three months, Goldman strategists said in a note on Friday.

One indication of investor anxiety is the fact that the 3-month downward implied volatility bias, which compares put option prices to at-the-money option prices, has reached new all-time highs, the note said.

“The high asymmetry reflects investors’ perception that high volatility would return if the markets sold,” the strategists said.

The high level of bias reflects the view that stocks would become increasingly correlated in such a scenario, the strategists said.

Strategists expect the sensitivity of markets to economic data to increase over time and have recommended longer-term hedges rather than shorter-term hedges.

The S&P 500 Index (.SPX) ended the week at an all-time high on Friday, driven by Nike and several banks, as weaker-than-expected inflation data allayed concerns about a sudden decrease in stimulus from the Federal Reserve.

The Cboe volatility index (.VIX) – often referred to as the Wall Street fear gauge – ended down 2.2 points to 15.62, not far from the over 16-month low of 14.19 hit Thursday.

Reporting by Saqib Iqbal Ahmed Editing by Sonya Hepinstall

Our standards: Thomson Reuters Trust Principles.

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