U.S. Stock Options Traders See Smooth Sailing As Fed Taper Looms
Options traders are showing little fear that U.S stocks will turn volatile in the 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, Saqib Iqbal Ahmed reported for Reuters.
Photo Insert: The Cboe Volatility Index (.VIX), 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 Cboe Volatility Index (.VIX), 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.
"The Fed has done a really good job telegraphing all their moves, making everyone comfortable with what's going to happen," he added. 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.