Having slashed exposures or loaded up on hedges amid the past month’s equity turbulence, traders are now rushing to add calls that will help them participate in any upside — while retaining their
Options Solutions in the News
Options activity shows demand rise for calls relative to puts
Traders are preparing for market turmoil to remain elevated
The put-to-call ratio for the $361 billion SPDR S&P 500 ETF Trust ETF (ticker SPY) based on open contracts recently hit the lowest in two years, according to data compiled by Bloomberg. The same situation exists for the $163 billion Invesco QQQ Trust Series 1 ETF (QQQ), where outstanding call options have surged to the highest since 2008
A drop in the put-call ratio is usually a bullish sign as investors prepare for a move upward. This time, though, signals from elsewhere in the market’s underbelly show traders are still guarding against declines after the S&P 500 plunged within a whisker of a bear market as the Federal Reserve stepped up its fight against inflation.
Open interest in puts on SPY, for example, has been rising for a month. For QQQ it’s near the highest since 2020. Short interest on SPY is near the highest in a year.
“Investors are using options to hedge themselves just in case they are wrong,” Steve Sears, president at Options Solutions, said in an interview. “If you short technology or QQQ in the stock market, for instance, you might hedge with long calls in the options market. If the stock surges the losses on short equities would be offset by long calls.”