MOSCOW, July 30 — Dow Jones. The exceptional markets are experiencing a lull, and some investors hope that it will continue.
Expectations of sharp fluctuations of the S&P 500 index small, and investors have increased investments in derivatives, which are usually recouped when the stock market shows slow but steady growth, and volatility remains low. On Friday, the S&P 500 and the Nasdaq Composite closed at record highs against the publication of the next portion of the corporate financial results for the 2nd quarter.
The value of the S&P 500 index has not changed even 1% in a period of 35 trading days, and this is the longest period of calm since October 2018, when such fluctuations was not within 74 days. One of the indicators of market volatility, Cboe volatility index (VIX), this year fell by 49.5% and can show the largest annual decline in its history, according to Dow Jones Market Data. This indicator reflects expectations for volatility over the next month and usually increases when investors expect sharp fluctuations in the quotations of options on the S&P 500 index.
However, many investors now refuse rates for sharp fluctuations in the stock market. Over the past few weeks the funds of borrowed funds, including hedge funds increased bearish bets on the VIX, as evidenced by the data of the Commission on commodity futures trading as of 23 July. A bearish bet on the VIX corresponds to a bullish bet on the stock market.
The exception was the volatility of some securities in the days of the publication of financial results. For example, vibrations of certain securities from the composition of the S&P 500 in those days was even stronger than expected, traders in the options market, the analysts of Goldman Sachs Group Inc. As a rule, these traders expect stronger fluctuations, than actually show the stock after the results. However, according to analysts at Goldman on July 23, this reporting season has developed the reverse situation.
For example, the paper of Google Inc. parent company Google has jumped by 9.6%, showing its largest one-day leap in 2015 and increasing market capitalization of the company at 79 billion dollars. This happened after the company on 25 July reported results for the 2nd quarter. Ahead of the data, traders in the options market was expecting a jump of only 4.7%.
According to Trade Alert on Monday as traders predict weaker than in previous periods, price fluctuations after the publication of the results for the stock of a number of companies, including Apple Inc. and Advanced Micro Devices Inc. These companies will report on the results of the quarter after market close on July 30.
One of the potential benefits of lower volatility is that market transactions can be less expensive. “This quarter the options in the season of reports was extremely cheap,” said Goldman analysts on July 24.
J. J. Kinahan, chief analyst-strategist markets at TD Ameritrade, notes that some individual investors sell positions in the shares and buying bullish call options — contracts that will bring profits in case if these or other stocks continue to rise. Such options give the right to buy shares at a certain price in a certain period of time.
However, a number of investors hope that the volatility will return. Because the stock market close to record levels, as volatility decreases, there is a risk that the decision of the U.S. Federal reserve, which has to be made this week, or new events not yet completed reporting season will trigger a rollback on the market.
For example, according to Trade Alert, last week intensified trade options that will pay off if the VIX skyrocketed. Some options involve the growth of this indicator to the level of 25, which is approximately twice the level of Friday’s close.
According to this logic, “market participants need some insurance in case the situation may get out of control,” said Kinahan.
— Author Gunjan Banerji, [email protected]; translation PRIME; +7 (495) 645-37-00; dowjonesteam @ 1prime.biz
Dow Jones Newswires, PRIME
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