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The Star
24-06-2025
- Business
- The Star
Traders wrestle with stocks' muted reaction
NEW YORK: The stock market's recent calm in the face of rising geopolitical threats had left options traders with a conundrum: sell volatility and risk being blindsided should the Middle East conflict escalate, or buy it and bleed away premiums as actual moves stay subdued. That tension is set to ratchet even higher after the United States attacked Iranian nuclear sites. While the oil market is still likely to have the biggest reaction to the escalating conflict, equities may see an initial jump in volatility as traders try to digest the risks. Oil has surged 11% since Israel launched airstrikes on Iran a little more than a week ago, with crude volatility soaring to levels not seen since Russia's invasion of Ukraine in 2022. By contrast, the S&P 500 Index is down just 1.3%. 'Markets will react, but probably still modestly in equity markets,' said Anthi Tsouvali, a strategist at UBS Global Wealth Management. 'Investors will also have to think about the impact of higher oil on inflation.' Some traders may be growing numb to Donald Trump's flip-flops, or just tired of chasing the headlines. In six months, markets have gone from 'Buy America' to 'Sell America' to now something murkier. They've learned to snap back quickly whenever risks subside, and that could happen again with the latest oil spike, which threatens to keep US inflation higher and slow Federal Reserve rate cuts. It's a dilemma facing volatility traders like Gareth Ryan, the founder and managing director of investment firm IUR Capital. 'Selling volatility at current levels inherently carries the risk of a volatility event, but paying out premiums with the expectation of a spike higher in vol also means holding a wasting asset,' Ryan said last week. For the options market, this environment has led to a muddied picture. On the one hand, implied volatility has dropped significantly from a high two months ago. But on the other, premiums aren't cheap. The collapse of realised swings on major equity gauges is making them look expensive. As of last Friday, the Cboe Volatility Index was near its highest level since April relative to actual S&P 500 volatility. The trend was similar for European stocks and Chinese equities traded in Hong Kong. While the options market was underpricing moves ahead of Liberation Day, making some volatility structures very profitable during the 'gamma shock' it triggered, the environment is different now that headline risk has a smaller impact. As the July 9 tariff deadline approaches, some strategists are saying a long gamma positioning is unlikely to yield the kind of bumper profits seen in April. 'On the more tactical side there is a general lack of scalable opportunities across the board on repo, correlation and volatility – historic dislocations are just not there at the moment,' Antoine Porcheret, head of institutional structuring for the United Kingdom, Europe, Middle East and Africa at Citigroup Inc, said last week. 'But that is part of a deeper long-term trend, notably in retail structured products, which historically was the main supplier of derivatives risks.' JPMorgan Chase & Co strategists, who noted on June 11 that investors' fatigue has set in after the many Trump U-turns, said the July 9 deadline could be postponed, which would create further uncertainty and make it difficult to trade with conviction. Dealing has already shifted to near-term maturities. S&P 500 options volume has dropped since May, with the share of zero-days to expiry contracts reaching a new peak of 59%, a separate JPMorgan report showed last week. One sign that there is a bit more concern among equity traders: The Cboe VVIX Index, measuring the volatility of the VIX, has increased to the higher end of its range over the past year, signalling more interest in buying options for portfolio protection against drastic swings. The conflict, and the muted reaction in stocks, has driven implied volatility for the US Oil Fund relative to the SPDR S&P 500 ETF to the highest level since the early days of Covid in 2020. That's led banks to pitch more dual-binary hybrid trades between oil and equities. 'In such geopolitical and macro environments, hybrids have been a natural tool to use, with recent activity around the oil theme played versus equities, and foreign exchange, through directional and volatility trades,' said Alexandre Isaaz, head of Europe, Middle East, and Africa equities derivatives sales and structuring at Bank of America Corp. To reduce risk while keeping their views, some buy-side investors are using strategies such as stock replacement – when an equity position is put on with options instead. One trader alone spent as much as US$3bil in premium on 2027 calls across a slew of large-cap US companies in recent months. 'I don't sense much fatigue from hedge funds, they are still actively looking for opportunities. On the vol carry side within the QIS (Quantitative Investment Strategies) space there is still demand,' said Porcheret. 'The market is generally underinvested, so the pain trade remains to the upside.' — Bloomberg
CNBC
23-06-2025
- Business
- CNBC
Fundstrat's Tom Lee says he is not surprised by market's resilience after U.S. attack on Iran
The market's mild reaction to the United States' bombing of Iran over the weekend isn't all that unexpected, according to investor Tom Lee. The major averages were mostly steady on Monday, even after the United States entered Israel's war against Iran by striking three Iranian nuclear sites. Stocks were last trading around the flatline. Oil prices were also lower for part of the session but remained well below the highs reached overnight. "In some ways it's not a surprise," the co-founder and head of research at Fundstrat Global Advisors said on CNBC's " Squawk on the Street ." Lee cited longtime New York Stock Exchange floor trader Art Cashin's adage to "sell the buildup, buy the invasion." "I think today's an example of that," he continued. "Markets were kind of already nervous and anxious, and we've already saw derisking, and the [Cboe Volatility Index (VIX)] was already elevated. So I think in some ways, this is probably pretty typical." .SPX 1D mountain SPX intraday The VIX, known to many as Wall Street's Fear gauge, traded around 21, touching levels not seen in about a month. Lee said that Monday's moves actually strengthen the case for stocks to perform better in the latter half of the year. "At the start of this year, we would have said the U.S. bombing a nuclear facility is a 'Black Swan.' Oil would be $120, stocks should be down 10%," he added. "And then we have the event, and oil is not really surging, ... So I'd almost say that you put another stress test into the market, we've seen it pass it, and I think it means stocks should do pretty well into year's end."
New Straits Times
18-06-2025
- Business
- New Straits Times
US stocks end lower as Israel-Iran fighting raises investor anxiety
NEW YORK: US stocks finished with losses on Tuesday as the Israel-Iran conflict raged on for a fifth day and kept investor anxiety high, with the US military moving fighter jets to the Middle East. Indexes added to losses in afternoon trading, and the Cboe Volatility Index rose to end at 21.60, its highest close since May 23. Reuters reported, citing three US officials, that the US military is deploying more fighter aircraft to the Middle East and extending the deployment of other warplanes. President Donald Trump called for Iran's "unconditional surrender". The war began on Friday when Israel attacked Iran's nuclear facilities. "We're in a period where visibility is not great, uncertainty is high, and the wall of worry is under construction," said Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis, Minnesota. Besides the Middle East conflict, investors are closely watching for any new information on Trump's tariffs, his tax-cut bill and US interest rates. A Federal Reserve monetary policy decision is expected on Wednesday, with policymakers widely seen leaving rates unchanged. All of the major S&P 500 sectors were lower except for energy, which gained along with sharply higher oil prices. Investors have worried that the conflict could create bottlenecks for oil exports from the oil-rich Middle East. Defence shares also rose, including Lockheed Martin, which was up 2.60 per cent. The Dow Jones Industrial Average fell 299.29 points, or 0.70 per cent, to 42,215.80, the S&P 500 lost 50.39 points, or 0.84 per cent, to 5,982.72 and the Nasdaq Composite lost 180.12 points, or 0.91 per cent, to 19,521.09. Sandven said the market could trade sideways until investors get more clarity, but earnings and other factors are likely to remain favourable for equities. Solar stocks fell after US Senate Republicans late on Monday unveiled proposed changes to Trump's tax-cut bill, including a phase-out of solar, wind and energy tax credits by 2028. Shares of Enphase Energy fell 24 per cent and Sunrun dropped 40 per cent. Eli Lilly shares eased 2.0 per cent after the company agreed to acquire Verve Therapeutics for up to US$1.30 billion. Shares of Verve surged. Earlier Tuesday, data showed US retail sales dropped more than expected in May, while factory production barely rose last month. "The resilient consumer is getting skittish," said Brian Jacobsen, chief economist at Annex Wealth Management. Declining issues outnumbered advancers by a 2.07-to-one ratio on the NYSE. There were 97 new highs and 77 new lows on the NYSE. On the Nasdaq, 1,325 stocks rose and 3,130 fell as declining issues outnumbered advancers by a 2.36-to-one ratio. Volume on US exchanges was 15.71 billion shares, compared with the 17.98 billion average for the full session over the last 20 trading days.
The Sun
17-06-2025
- Business
- The Sun
US stocks rebound as investors brush off Middle East tensions
NEW YORK: US stocks ended higher on Monday, recovering from Friday's sharp losses as investors' concerns over ongoing hostilities between Israel and Iran eased somehow, Xinhua reported. Escalation of conflicts between Iran and Israel had briefly rattled markets -- oil prices surged, the Cboe Volatility Index (VIX) spiked, and gold prices rose as investors sought safe havens. However, Monday's action suggested confidence remained intact. High-yield credit spreads widened by just 2 basis points. The Dow Jones Industrial Average rose 317.30 points, or 0.75 per cent, to 42,515.09. The S&P 500 added 56.14 points, or 0.94 per cent, to 6,033.11. The Nasdaq Composite Index increased by 294.39 points, or 1.52 per cent, to 19,701.21. Seven of the 11 primary S&P 500 sectors ended in green, with communication services and technology leading the gainers by adding 1.53 per cent and 1.52 per cent, respectively. Meanwhile, utilities and health led the laggards by losing 0.50 per cent and 0.40 per cent, respectively. Market history supports the idea that geopolitical shocks are often short-lived in their market impact. According to Deutsche Bank analysts Parag Thatte and Binky Chadha, the S&P 500 typically drops around 6 per cent in the three weeks following a geopolitical event, but usually recovers those losses in the next three weeks. Deutsche Bank's Henry Allen added in a Monday note that geopolitical events tend to have lasting effects on equities only when they disrupt the real economy, either by slowing growth or driving inflation. So far, investors seem to be betting that neither scenario is likely in the near term. Despite lingering geopolitical concerns, historically low equity positioning and resilient fundamentals may be keeping a broader sell-off at bay, allowing risk appetite to return for now. 'Focus will remain on geopolitical headlines, but as long as the conflict stays limited between Israel and Iran, it's unlikely to materially impact the markets,' said Tom Essaye at the Sevens Report. Tesla rose more than 1 per cent on Monday, while Meta Platforms climbed 2.9 per cent, helping power the broader market. Palantir, often seen as a beneficiary of rising geopolitical instability due to its defence and AI ties, rose nearly 3 per cent. The rising move comes ahead of a key week for monetary policy. Investors digested a weaker-than-expected manufacturing survey released Monday morning by the New York Federal Reserves (Fed), adding to signs of slowing momentum in the industrial sector. Still, the data did little to shift expectations ahead of the Federal Reserve's interest rate decision on Wednesday. According to CME Group's FedWatch Tool, futures markets are pricing in a 100 per cent chance that the Fed will hold rates steady, despite renewed pressure from US President Donald Trump, who has called on Fed Chair Jerome Powell to cut interest rates. However, elevated oil prices stemming from the conflict in the Middle East are expected to keep inflation risks on the Fed's radar and reduce the likelihood of rate cuts in the near term. 'Markets got a reminder that tariffs aren't the only potential source of market volatility,' said Chris Larkin at E*Trade from Morgan Stanley. 'Right now, markets are signalling they expect the situation in the Middle East to remain contained, but any surprises could have an oversized impact on sentiment.'
The Sun
17-06-2025
- Business
- The Sun
Wall Street rebounds as Israel-Iran tensions ease
NEW YORK: US stocks ended higher on Monday, recovering from Friday's sharp losses as investors' concerns over ongoing hostilities between Israel and Iran eased somehow, Xinhua reported. Escalation of conflicts between Iran and Israel had briefly rattled markets -- oil prices surged, the Cboe Volatility Index (VIX) spiked, and gold prices rose as investors sought safe havens. However, Monday's action suggested confidence remained intact. High-yield credit spreads widened by just 2 basis points. The Dow Jones Industrial Average rose 317.30 points, or 0.75 per cent, to 42,515.09. The S&P 500 added 56.14 points, or 0.94 per cent, to 6,033.11. The Nasdaq Composite Index increased by 294.39 points, or 1.52 per cent, to 19,701.21. Seven of the 11 primary S&P 500 sectors ended in green, with communication services and technology leading the gainers by adding 1.53 per cent and 1.52 per cent, respectively. Meanwhile, utilities and health led the laggards by losing 0.50 per cent and 0.40 per cent, respectively. Market history supports the idea that geopolitical shocks are often short-lived in their market impact. According to Deutsche Bank analysts Parag Thatte and Binky Chadha, the S&P 500 typically drops around 6 per cent in the three weeks following a geopolitical event, but usually recovers those losses in the next three weeks. Deutsche Bank's Henry Allen added in a Monday note that geopolitical events tend to have lasting effects on equities only when they disrupt the real economy, either by slowing growth or driving inflation. So far, investors seem to be betting that neither scenario is likely in the near term. Despite lingering geopolitical concerns, historically low equity positioning and resilient fundamentals may be keeping a broader sell-off at bay, allowing risk appetite to return for now. 'Focus will remain on geopolitical headlines, but as long as the conflict stays limited between Israel and Iran, it's unlikely to materially impact the markets,' said Tom Essaye at the Sevens Report. Tesla rose more than 1 per cent on Monday, while Meta Platforms climbed 2.9 per cent, helping power the broader market. Palantir, often seen as a beneficiary of rising geopolitical instability due to its defence and AI ties, rose nearly 3 per cent. The rising move comes ahead of a key week for monetary policy. Investors digested a weaker-than-expected manufacturing survey released Monday morning by the New York Federal Reserves (Fed), adding to signs of slowing momentum in the industrial sector. Still, the data did little to shift expectations ahead of the Federal Reserve's interest rate decision on Wednesday. According to CME Group's FedWatch Tool, futures markets are pricing in a 100 per cent chance that the Fed will hold rates steady, despite renewed pressure from US President Donald Trump, who has called on Fed Chair Jerome Powell to cut interest rates. However, elevated oil prices stemming from the conflict in the Middle East are expected to keep inflation risks on the Fed's radar and reduce the likelihood of rate cuts in the near term. 'Markets got a reminder that tariffs aren't the only potential source of market volatility,' said Chris Larkin at E*Trade from Morgan Stanley. 'Right now, markets are signalling they expect the situation in the Middle East to remain contained, but any surprises could have an oversized impact on sentiment.'
