How the Options Market Responded to QE3
WEBINAR: 10 Things to Know About Selling Options, Thurs., September 20 at 6pm ET w/Russell Rhoads and Jill Malandrino. CLICK HERE FOR INVITE AND TO REGISTER.
On Thursday, option markets reacted to the Federal Reserve announcement in a few ways. First and most obviously, implied volatility fell hard as stocks and other risky assets rallied. While it will take some time to see whether the new Fed program is successful at shaping market expectations, my initial reaction is that this will put a real floor on U.S. equity prices.
Second, implied volatility skew dropped as investors became more willing to hold unhedged assets and to sell calls and buy puts at lower prices. This is another bullish sign. The 25 delta three-month SPDR S&P 500 (SPY) implied volatility skew was as low as 0%-10% in the years before the financial crisis; since then, it has moved in a range of 30-45% most of the time. A major shift in investor sentiment could see this skew estimate fall back toward pre-crisis levels.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV