Wednesday, December 9, 2009

Options Traders Betting On Catastrophe In 2010?

...unusual options action leads at least one Fast Money trader to speculate that big investors may be looking at something else all together -- and it's quite bearish.

What must you know?

In the options pits I'm seeing contango; the vol curve has steepend quite a bit over the past couple months, explains Jared Levy of Peak 6. That means options which expire next year are much more expensive than those that expire this year.

The last time this happened was in March of 2000 – and after that we saw a 49% decrease in the S&P.

It’s very unusual that back month options have such an increase in implied volatility. Typically it’s the other way around. Typically they are much cheaper because volatility tends to rise as the options come due.

It suggests options traders are growing more concerned about catastrophe in the year ahead, Levy concludes.

I also have that trend on my radar, adds Danielle Hughes of Divine Capital. It’s possible it's related to what's going on in Europe; it could generate strong head winds in 2010.

(from CNBC, December 9, 2009)

No comments:

Post a Comment