The Striking Price at Barron’s explains why even long-term bullish options traders may be dying for a market reversal.
We believe this thinking applies beyond options as well, for people who like to weave in and out of stocks, straight-up markets are boring and feel increasingly dangerous the farther they run.
NO ONE COMES OUT and says this — because it is like wishing for a train wreck — but many traders secretly long for a return of volatile volatility. For the past 18 months, volatility has declined, making it difficult to generate outsized returns.
If the financial markets were to convulse, stock prices would paroxysm, options prices would inflate with fear, and all this would create enormous trading opportunities. In essence, everyone really wants to recreate the volatility conditions that allowed many investors to realise massive, once-in-a-lifetime returns when the Standard & Poor’s 500 Index bottomed in March 2009, and then surged higher.
Absent genuine volatility, traders and investors are running investment screens to identify companies with strong fundamental characteristics, including excess cash flow and growing earnings.
Searching for fundamental value? The horror.
Yet, despite all the machinations, no one seems to have any great insights into the next great trade. All anyone seems to do is crowd headlong into the home builders, energy, retail and industrial sectors to position for the U.S. economy to strengthen.