(Bloomberg) — Hedging is back as investors fret over concerns about everything from the US presidential election to second-quarter earnings, economic growth and interest rates.
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The Cboe Volatility Index, a gauge of options prices, surged the most in more than a year last week as stocks sank with growing calls for Joseph Biden to quit the presidential race. Now that he’s done so and thrown US politics into uncharted territory, futures on the gauge have slipped after earlier climbing as much as 1.8% in Asian trading. October contracts, which measure swings around the vote, rose even more and were still up by 1:19 p.m. in Hong Kong.
Also read: Dollar Slips as Biden Quits Race, China Bonds Gain: Markets Wrap
Should Vice President Kamala Harris become the Democratic nominee, risk pricing is likely to look similar to what it was before Biden’s debate against Donald Trump, according to Stuart Kaiser, head of US equity trading strategy at Citigroup Global Markets.
“Policy continuity means she is the closest proxy for Biden among the alternatives so the volatility pricing will look very similar,” Kaiser said. “Perhaps with a bit more risk premium given the late change and recent events on the Trump/GOP side of things.”
After shunning protection against a selloff that never happened in the first half of the year, traders are now switching modes. Beyond politics, they’re watching whether technology company earnings can support still-lofty valuations — Tesla Inc. and Google’s parent Alphabet Inc. are reporting this week — while chatter on when the Federal Reserve will start to lower interest rates will remain in focus.
With increased chances of Trump winning the presidency largely baked in, positioning in the rates market is shifting to gauge the chances of a cut at the end of this month or a bigger one in September.
Some of the froth has come out of the stock market as earnings ramp up. Just a couple of the biggest tech companies have a positive call skew — when bullish options are more expensive than bearish ones — according to…
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