Bets on Stock Rally Explode After an Odd Year in Options Trading
- Market pricing in 1-in-5 odds for 23% S&P 500 Gain in 2023
- Susquehanna advises clients to sell calls and fund put hedging
Pedestrians pass in front of the New York Stock Exchange (NYSE) in New York.
Photographer: Michael Nagle/BloombergHedging against the unknown is the name of the game in the options market. One risk that traders are increasingly attuned to in equities is the chance they will rally in 2023.
Wall Street strategists doubt it and investors are positioned against it, but certain pricing trends in derivatives show fewer traders are ruling it out after last year’s nearly 20% plunge in the S&P 500. The bets are far from the consensus — right now they’re pricing in a 1-in-5 chance the S&P 500 essentially reverses the decline in 2023, according to an analysis of implied volatility by Susquehanna International Group. But that’s a lot better odds than were being placed this time last year, when they stood at 1-in-20 for such an advance.