I feel I get a lot of great bloggers blogging for no reason.But I have a reason and the big story is option prices on the SPX Index and on S&P 500 ETF’s. For April 1650’s, I nearly have to pay 2 bucks. That means to bet the S&P 500 needs goes to 1650 and actually even lower by April. That means people are willing to pay high premiums that this will happen. That means the likelihood of it happening is high.
Basically, Stock market bulls have been like backers of a lousy sports team, making plausible arguments for why a win streak should soon start — predictions that don’t survive contact with the opponent.
By this point, half a year into a punishing tailspin, these fans must try to take comfort in the futility itself, hoping that the team’s been “bad enough for long enough” to earn it a top draft pick to offer a shot at turning things around.
It’s all a bit pathetic, and neutral observers would be forgiven for scoffing. But by several measures of investor sentiment, technical trading extremes and fundamental conditions, the bullish fans do seem finally to have such a chance to enjoy a turn higher for a while.
The context for this prospect is just how thoroughly the market has dismissed the bullish side in three central debates. The bright-side crowd has contended that we’re in a nasty bull-market correction rather than a bear market; that the U.S. is not nearing a recession; and that even such a downturn would not approach the brutality of the 2008 meltdown.
To each of these, the markets have effectively answered, “It doesn’t matter.”
All that said – short something. Bet on tai risk. Buy the Vix. protect any risk assets you have. The market doesn’t put these kind of odds on things for no reason. Remember how long the market told the fed rates were going nowhere? They were right. Now they are telling you the S&P 500 will crash. Likely, they will be right.
Derivative securities tend to be leading indicators to the underlining securities, as one would suspect.