Video: A look at what's coming up in the week ahead

Author: Chris Weston | Category: News

What are the signals from the options market


It was a mini-turnaround week in markets, and after a strong sell-off in bonds, steeper curves, FOMO in equities, we have seen a few looking to fade this correlated move.

I have argued that USDCNH is the large driver of the variance in markets of late, and as we can see in the chart below, which looks at USDCNH (white bars) vs US 10year treasury (inverted), as USDCNH has weakened we've then better buying in USTs (yields lower) and along with variables such as a poor Aussie jobs number we've seen China proxies lower. 

What are the signals from the options market

Headlines that "US-China will struggle to close a Phase One trade deal" have caused some angst, when, equity markets were fully priced. Ugly scenes in HK have seen funding costs spike and the Hang Seng has dropped 5.5% this week.

My clear focus in on volatility, or the clear lack there of. For those active in the market, you wouldn't need me to tell you that. Either way, we can use this vol setting, to understand the exact move being priced by markets. We can use this to understand our risk and achieve more efficient position sizing. 

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1-week risk reversals - A fair more neutral setting with both 25-delta call and put vols more equally weighted. Gold is certainly of interest, and after such a bullish setup sentiment is as neutral as I have seen all year. 

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After all we've heard from central banks, less bad data and a firm wait-and-see view..here's the picture of where we stand.

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