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Article / 10 October 2016 at 14:10 GMT

Volatility Update: Volatility could soon return

Product Manager Futures and Options / Saxo Bank
Denmark
  • US earnings season may trigger mild volatility
  • US presidential election has investors on edge
  • Equities retain their gains as Clinton seen winning
earnings season
 The US corporate earnings season may stir up a touch of volatility. Pic: iStock

By Georgio Stoev

This week kicks off earnings season in the US and with it volatility could come back, albeit sparingly. Being October, just a few  weeks before US general election, also has investors nervous. Equities have managed to keep their gains so far as if investors are foreseeing another Democrat in the White House come January 20. Here's how different assets fared for the week of October 3–7t

Week
 










Source: Saxo Bank

A look back into last week's action sees gold being the biggest mover, down 4%. Despite this punishment, gold has been a good asset to have in a portfolio. We could see buyers coming back into this market after the selloff. Gold futures for December delivery GCZ6 seem to be finding support near $1,257. Volatility has increased in gold options as the price went down. 

gold term
Source: QuikStrike

Investors who believe that prices of the precious metal could stabilise in the short run could look at a short put spread using the ETF or option on the underlying future – selling 1255 Nov 16 Put/Buying 1245 Put for a net credit of $3.60. 

Oil seems to be poised to move higher and we could look at a vertical call spread here using CLX6, 51/52 for a debit of $4.30. This provide an opportunity to make $5.30 (1 lot size is 1000).

Earnings are coming and you should be properly hedge for your long equities. It's not too late to add a collar or protective Put on some of your core positions. We discussed these strategies in depth last week.


Have a good week ahead.


– Edited by Clare MacCarthy

 

Georgio Stoev is futures and options product manager at Saxo Bank 


10 October
Feders Feders
Hello Giorgio, sorry but this "selling 1255 Nov 16 Put/Buying 1245 Put for a net credit of $3.60. " is not a long put spread?
10 October
Georgio Stoev Georgio Stoev
Hi Feders- selling a put with a higher while simultaneously buying a put with a lower strike is a short put spread which results in a credit. For additional info, pls check webinar on income strategies.
10 October
AlexF AlexF
Hi Georgio would you then advise to keep a call on vix till after election looking at trump likely to loose? I do have a call 15 strike expiry 16 november that I bought prior to last week end
11 October
Georgio Stoev Georgio Stoev
if you expected volatility to creep back up, you could work with VIX calls as wells SPX puts, SPY puts. Volatility is low relatively speaking, which makes puts less expensive.
11 October
AlexF AlexF
OK
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