Choices exercise hints U.S. inventory market has not reached bottom- Barclays By Reuters

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – Choices buying and selling exercise doesn’t but trace at a backside in U.S. shares, Barclays (LON:) derivatives strategists stated on Tuesday, rebutting hypothesis amongst some traders {that a} document surge in put possibility buying and selling volumes recommended the market could also be nearing a reversal.

With the marking a recent bear market low on Tuesday, down 24% for the 12 months, merchants and traders are trying to find clues as to when the market might backside out.

Buying and selling in put contracts – sometimes used to guard in opposition to market losses – has surged, with a document 33.93 million put contracts altering fingers on Friday alone. That left merchants who view excessive put-option exercise as an indication of investor pessimism peaking questioning if the selloff is finished.

That is not the case, in accordance with Barclays.

“Opposite to standard perception, fairness traders didn’t rapidly pile into safety shopping for,” Barclays fairness derivatives strategist Stefano Pascale stated in a be aware on Tuesday.

“However in contrast to the earlier market lows in June, in addition they extra patiently shunned speeding to monetize current hedges, suggesting they anticipate the worst is but to return.”

However whereas the buying and selling exercise suggests there may be nonetheless concern available in the market, it has not risen to ranges related to previous market bottoms.

Put contracts give the customer the appropriate to promote securities at a set value sooner or later and traders typically purchase them as a method to insure in opposition to potential losses.

Surging volumes of places doesn’t at all times level to excessive concern, nonetheless, since a few of the quantity could also be resulting from traders promoting these contracts within the perception market losses are more likely to be restricted.

“We do not see proof of document fairness safety shopping for when promoting exercise can also be correctly accounted for,” Pascale stated.

As an illustration, in choices on ETFs, places promoting reached a four-year document, in accordance a Barclays evaluation, signaling peak concern remains to be distant.

On Tuesday, the Cboe Volatility Index, often known as Wall Road’s concern gauge, was at a 3-month excessive of 33, however far beneath peaks hit throughout previous bear market lows.