First Quadrant Insights: Options Outlook Q1: Steady As She Goes
January 13, 2021
The options structure can be a useful tool for identifying market participants’ outlook.
In 2020, global equities followed a sharp V-shaped pattern. Even while the cash market staged a strong recovery, implied volatility in the options market remained well above historical averages. We last checked in on October 30th, 2020 (“Options and the Presidential Election”), using the S&P500 index options to see what the market thought about the November 2020 election. At the time, the options market seemed to be anticipating a spike in volatility right around the election and then a continual decline.
In hindsight, the options market was correct. Volatility started to fall almost immediately after the election, and continued to decline through year-end, even with ongoing litigation surrounding the election and the forthcoming Brexit.
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