Fear at a Crescendo with Record Put Option Contracts on U.S. Stocks, ETFs and Indexes

Fear gripped global final markets Friday with the global leveraged speculating community awash with derivatives. In the US alone there were 34 million put-option contracts traded Friday across U.S. stocks, exchange-traded funds and indexes. Cboe Global Markets data said this was the highest on record going back to 2008. Put options are used by to hedge portfolios or speculate on lower prices.

Fear is in control but is it at a point of saturation contrarians are asking. The overhanging risk is the sheer size of the derivative markets that could override short covering. One just has to look at the collapse of the British Pound to 1.037 all-time lows. It was 1.45 a few weeks back. Sterling was seen as a safe haven a few years ago. Things change very quickly.

Investor sentiment is a key gauge for the velocity and voracity of a market potential move. A dark cloud has come over the markets in the past few weeks after higher CPI numbers in the US, shocking inflation report in Germany, the threat of war and a hawkish Federal Reserve. Globally Central banks have been raising rates at breakneck speed.

The latest AAII Sentiment Survey reflects this mood with the percentage of individual investors describing their six-month outlook for stocks as “bearish” at its highest level since 2009. At the same time bullish sentiment is among the 20 lowest since 1987.

Puts on popular shorts and hedges also pumped higher on stocks such as AAPL and TSLA. Tesla put-options volume jumped to a record. AAPL is the most heavily shorted stocks in terms of number of shares shorted.

Source: CBOE, WSJ

From The TradersCommunity Research Desk