Overwriting attractive on equity outperformance vs creditOver the past month, equities have risen about 3% more than would be expected relative to the credit market. In the past 3 years, such outperformance has been a good predictor of a plateau in the equity market until credit catches up. When combined with the recent rise in single stock implied volatility we expect to see an increase in overwriting activity. Since December expiration, we estimate the average US stock with liquid options is up 1.8%; overwriting with 10% OTM 1-month options has outperformed by 19bps, while put selling outperformed by 44bps. Option selling in the Technology sector continues to be attractive in our view as average 1 month implied volatility is 26, the highest among the sectors and
in its 90th percentile over the past year.