A Hint of Angst May Be Emerging as the S&P 500 Rallies With the VIX

  • Trading of S&P 500 options surges as gauge hits fresh record
  • Seaport expects volatility to ease with earnings releases

Fidelity's Stevenson Expects Equities Bull Market to `Grind On'

As the market keeps rallying, rising hedging costs signal investors may be growing more anxious.

The Cboe Volatility Index, a measure of options prices, has climbed 17 percent this week through Wednesday as the S&P 500 hit yet another record, boosted by earnings optimism. Should the gains be maintained, it’d be the second week in a row that the gauges moved in tandem, something that hasn’t happened over a similar stretch since August 2016.

While the S&P 500 is heading for its best January since 2013, recent trading shows skepticism may be on the rise for an index that’s been in overbought territory since Jan. 3. A Cboe measure of tail-risk protection costs jumped the most since October on Wednesday, and the volume of S&P 500 options hit a more than two-year high.

“With the recent sharp run-up in stock prices, investors have begun to become more concerned that a top in stocks may be near or at least that a significant pullback is right around the corner,” Bill Luby, the chief investment officer of Luby Asset Management, wrote in a note. He sees a government shutdown as one “potentially significant” risk in the short term.

Seaport Global Securities derivatives strategist John-Mark Piampiano doesn’t expect volatility to last. He sees the VIX going lower and on Tuesday recommended buying February puts while selling March contracts. He expects “a lot of downside to volatility” in the short term as companies report results.

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