Trump Aides’ Confusion Mimicked by Bond, Stock Options Gauges

  • Skew suggests equity investors see little chance of event risk
  • Treasury options’ skew turns negative, showing calls are bid

The Market Conundrum of Volatility and Uncertainty

President Donald Trump’s aides aren’t the only ones offering conflicting interpretations. The markets are as well.

While options investors in the U.S. are expressing risk-on sentiment, traders in Treasuries are beginning to sense a risk-off move may be round the corner.

The difference between normalized one-month 25-delta puts and calls on the S&P 500 Index is now near levels seen in July, when stocks surged. Effectively, current positioning suggests that investors are pricing a low probability of a sell-off.

Over in Treasuries, the spread between puts and calls on an exchange-traded fund tracking notes with maturities of 20 years and longer has turned negative, suggesting investors are betting that the recent push toward higher yields at the back end of the curve is waning -- at least for now.

— With assistance by Cecile Vannucci

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