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U.S. stock options traders see smooth sailing as Fed taper looms

EconomyOct 22, 2021 02:26PM ET
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© Reuters. FILE PHOTO: 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/

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.

"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.

U.S. stock options traders see smooth sailing as Fed taper looms
 

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Comments (2)
MK MK
MK MK Oct 22, 2021 4:37PM ET
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How do those huge prices help economy?? Stop calling this stealing as some kind of help
John Avenetti
John Avenetti Oct 22, 2021 2:41PM ET
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the Fed is a criminal organization that is spear heading the destruction of the dollar. Covid and the Fed. Two colossal shams to bring down the USA. want to explain to me how we're going to pay back 32 Trillion? we're adding to it and paying none of it off. doesn't matter whose president it just keeps going up. and answer me this. you believe the media that COVID itself is really dangerous. it's a common flu. the media and politicians have been weaponized.
 
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