Options as derivative of stocks…or stocks derivative of options…
Another great chart by Chris Cole of Artemis Capital Management. Let the chart speak for itself.
Imagine things start to move a little more seriously…
Ranked in order of perceived risk-reward:
2. EM ex Asia
3. SX5E and periphery
4. Global Corporate Cyclicals
5. Consumer Cyclicals – “Reopening trade”.
6. Russel 2000
8. Highly leveraged balance sheets
Chart: The number 1 pick….Banks are down 33% ytd in the US, and almost 40% in Eurozone. They were hindered by subdued bond yields, but the gap is starting to open up and bond yields might be able to move higher in 1H…
Mike Wilson, head of equity strategy at Morgan Stanley sees risk of S&P500 trading down to 3100.
“…with so much uncertainty surrounding the outcome of the US elections, the second wave of COVID-19, and the upward pressure on long-term interest rates and volatility, the equity risk premium should be about 10% higher, in my view. In short, we like our 3100-3550 range on the S&P 500 as a good guide for US equity risk-taking from both a technical and valuation perspective.”
3100 is 200 day moving average area…
The percentage of stocks beating the index approaches an extremely low level of 30%. Major market tops occurred in 1972/73 and 1999/2000 period. Could the indicator be signaling another top here?
New aggressive tones over the weekend where Erdogan said that Macron needed mental treatment (due to latest comments about Islam). There were other rather strong wordings by Turkey aimed at Europe as well.
Charles Mitchell, president of the EU council wrote on his Twitter over the weekend;
““provocations, unilateral actions in the Mediterranean and now insults….It’s unacceptable,”.
Erdogan was also vocal versus the US when it comes to possible sanctions due to the Nagorno-Karabakh conflict.
Add the imploding economy and the rate hike last week markets expected but never got, and you understand why the TRY is breaking above the huge 8 level, last at 8.03.
FT is running a great big read article on the UAE vs Turkey topic well worth a read, click here.
Over the weekend we reminded our readers of who is running the biggest Turkish risk outside Europe, BBVA, here.
Second chart shows EU banks vs BBVA.
Despite historically trading in line with the market, stocks spending the most on cash M&A have outperformed the S&P 500 since the start of 2019.
Good pre-cursor for mania when mngts feel that M&A gets rewarded in the all important share price
On October 9 we once again outlined that VVIX not buying the latest VIX move lower.
We concluded that “Gamma though is to be owned…”
Fast forward and we have VIX almost catching up to VVIX and things are suddenly not feeling as confident.
On buying protection here our frequent readers know what we think;
“buy protection when you can, not when you must”.