Market Panic Shadow Risks Rising, US Stock Options Costs Soar
Zhitong Caijing APP notes that under the dual pressure of tariff policies and economic concerns, the S&P 500 index plummeted 1.8% on Friday, setting a new low since April. Data from option markets shows that market fear of an economic downturn is brewing.
During the trading hours on Friday, all major sectors, including technology giants, energy, and finance, suffered widespread selling. The trigger point was the July employment growth falling short of expectations, exacerbating concerns about President Trump's tariffs policy impacting the economy.
The Cboe Volatility Index (VIX), also known as the "Wall Street Fear Gauge," jumped to near-20 levels - a sign that market pressure is building.
Currently, the cost of hedging against market crashes is becoming increasingly expensive. The put options contract for S&P 500 index ETF shows that the cost of buying insurance against a potential 10% decline in the next 60 days has risen to its highest level since May 2023, when regional banks were in crisis - compared to the cost of hedging against an equivalent upward move.
Susquehanna Derivatives Strategy Co-Head Chris Murphy analyzed that "this is not a panic sell-off, but rather a cooling down of market enthusiasm." "The popular stocks have cooled off, and systematic holdings are near their peak. As a result, the demand for protection against upward moves has weakened."
This phenomenon indicates that investors are starting to buy protection against potential risks for the next two months. With the market entering its historically worst-performing August and September, traders are intensifying their preparations for a downturn.
Data from Deutsche Bank shows that commodity trading advisors (CTAs) held stocks with a long-only position at a record high of 94% - the highest level since January 2020.
This type of quantitative fund typically follows a strategy of "buying up and selling down." Although this indicates their confidence in stocks, it also means that if market conditions change suddenly, there may be a sharp reversal.
Currently, investor anxiety is still mainly focused on the short term. The S&P 500 index's option skewness indicator - which measures stock portfolio protection costs - has been rising but remains far below its level in April when the market crashed.