Basket o' Puts

Creating a diversified portfolio of short term income trades

Created with DALL-E

Setting the Table

• Markets have been highly range bound this week as the main event is today’s jobs report.. The SPX hasn’t moved outside a 50 point window and futures this morning were only a few basis points below even. All eyes on digesting what this means for future rate adjustments.

  

• The SPX straddle coming in today is beefier than usual, trading at about $30 today before the news. These have been as low as $17 recently, highlighting the importance of the figure. Compare that to Monday and Tuesday’s prices, where you get the whole weekend for only $9 more. Tuesday of course is quite a bit pricier because it includes both Jobs and CPI (Tuesday AM).

  •  Interestingly, the comparison figure here is GARCH, and it’s only slightly lower. GARCH as a model doesn’t know about forward event vol, it just looks at the historical data and predicts ranges based on long and short term price action. In the world of event vol, that’s suggesting it isn’t all that expensive. There’s still a full trading day ahead, but the the news out, after a sharp reaction, the market is still only down 20bps

    

• Stable Skew is pointing out that not just is the overall curve up, we’re actually seeing some upside buyers. Given the end of year environment with positive structural rebalancing flows in this holiday calendar, traders are pricing in more of an upside surprise than downside.

  

• Our Risk Reversal indicator (FALC)  that tracks the price of puts relative to calls continues to push lower during the bull run.