Options speculation focused on market upside, diverging from historical hedging trends.
Increased call skew in ETF proxies, like China, may indicate a potential market rebound.
Deep dives
Options Speculation and Market Risk
The podcast delves into the current trend of options speculation and its impact on the market risk. The discussion highlights that most options activity is aimed at betting on further market upside rather than for hedging purposes. This trend is described as being historically divergent from empirical data, indicating a focus on momentum and fear of missing out in the market.
Evaluating Emerging Market Equities
The episode explores the outlook for emerging market equities, specifically focusing on the MSCI EM ETF and bullish call buying. The conversation raises the question of whether the increased call skew in ETF proxies like China indicates a potential market rebound. Investors are seen using these calls as a right-tail hedge to prepare for a potential upturn, despite mixed sentiments on the likelihood of such a rebound.
Assessing Volatility Across Asset Classes
The podcast shifts the discussion towards volatility dynamics across various asset classes, with a particular emphasis on equity volatility. The conversation reveals that equity volatility, especially on the left tail, is considered relatively inexpensive. However, concerns are raised about leverage in the system and the impact of short volatility trades on market stability.
Trend Analysis in Equities and Currency Markets
The episode examines trend signals in equities and currency markets, highlighting the strength of market trends seen since 2017. Insights suggest a consistent upward trend in equities, indicating a resilient market performance. The conversation also touches on the weak signals observed in currencies, emphasizing a wait-and-see approach due to uncertain policy impacts.
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF. Bloomberg Surveillance hosted by Tom Keene and Paul SweeneyMarch 13th, 2024 Featuring:
Amy Wu Silverman, Managing Director and Head of Derivatives Strategy at RBC
Katy Kaminski, Chief Research Strategist at AlphaSimplex
Tom Porcelli, Chief US Economist at PGIM Fixed Income
Bloomberg's Lisa Mateo with her Newspaper Headlines