U.S. stock options traders see smooth sailing as Fed taper looms
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[October 23, 2021] By
Saqib Iqbal Ahmed
NEW YORK (Reuters) - Options traders are
showing little fear that U.S stocks will turn volatile in coming weeks,
even as the Federal Reserve appears set to announce an unwind of the
easy money policies that helped equities double from last year’s lows.
The Cboe Volatility Index, known as Wall Street’s fear gauge, recently
stood at 15.52 after closing at a post-pandemic low of 15.01 on
Thursday.
The S&P 500 Index was down 0.2% on Friday, a day after closing at a
record high. Though many investors have worried over how stocks will
react when the Fed begins to taper its $120 billion in monthly
government bond purchases, the so-far sanguine trading in the options
market suggests that market participants are not rushing to buy
insurance against volatility over the next few weeks.
The Fed has suggested it will likely announce a taper at the conclusion
of its next policy meeting on Nov 3.
"It definitively points towards investors being more comfortable with
the Fed," said Chris Murphy, equity derivative strategist at Susquehanna
International Group.
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Morning sunlight falls on the facade of the New York Stock Exchange
(NYSE) building in Manhattan in New York City, New York, U.S.,
January 28, 2021. REUTERS/Mike Segar/
"The Fed has done a really good job telegraphing all their moves, making
everyone comfortable with what's going to happen," Murphy said.
That is not to say things couldn't change as investors get more details on the
Fed's plans to withdraw monetary support and eventually raise rates.
The VIX briefly spiked to a four-day high of 16.39 on Friday after Fed Chairman
Jerome Powell said that the U.S. central bank is "on track" to begin reducing
its purchases of assets, and noted that he expects inflation to abate next year
as pressures from COVID fade.
VIX futures expiring in coming months have been slower to pull back relative to
the spot VIX, signaling a fair bit of anxiety about how stocks will perform in
coming months, analysts said.
(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili)
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