Investors expect that the correction in the American stock market, which resulted in its capitalization declining by $2.5 trillion since the beginning of September, is largely over, as evidenced by the indicator of demand for options used by traders to protect against sharp market downturns.
The CBOE Skew Index, which measures the position of investors in the US options market and serves as an indicator of traders’ interest in instruments to protect against market falls, fell this week to its lowest level in 11 months. The indicator, nicknamed by investors the Black Swan Index, dropped to 130.9 points from the September 3 level of 162.3 points, which was close to an all-time high.
Such dynamics of the index suggests that investors are no longer in a hurry to hedge the risks of a further downturn in the stock market, writes the Financial Times. This also suggests that they are fixing profits on derivatives purchased earlier to protect against a possible decline in the stock market, experts say.
Interest in Hedging Instruments Decline
Investor interest in hedging instruments is declining, although the risks that contributed to the stock market downturn persist. These are, in particular, the risks associated with the debt problems of Chinese real estate companies, the energy crisis in Europe, uncertainty regarding the US government debt limit, as well as the growth of US Treasury yields.
The S&P 500 stock index renewed its record on September 3 and is down 3% from that level so far.
“Investors are taking profits, which means they are not expecting major events that could seriously affect the stock market,” said Manish Deshpande, an analyst at Barclays (LON: BARC). but the likelihood of these events happening is low. ”
Despite the decline, the Skew Index remains above the long-term average, which shows that investors do not rule out fluctuations in the US stock market. The VIX indicator of expectations for market volatility holds above the historical average of 20 points.
The market correction has given traders the opportunity to regroup their portfolios, said James Massario, in charge of US equities at Societe Generale (PA: SOGN).
Analysts at JPMorgan earlier this week recommended that their clients buy the stock after the market slump.
Despite the slowdown in economic growth and the prospect of gradual withdrawal of stimulus by global central banks, many traders view the market correction as an opportunity to buy stocks. Experts expect US corporate earnings for the third quarter to be mostly strong, and the momentum for economic growth will rebound amid declining COVID-19 incidence.