Daily Brief - Fomo Markets! (Nov 10, 2021)

BofA analysts think we are in a “FOMO market”.

As the market roars towards year’s end, investors are afraid of underperforming rivals and are pushing up their exposure to US markets.

The market bears all the hallmarks of a momentum chase:

  • Call options volumes are at all-time highs

  • The ‘skew’ is falling (this is explained in lay terms below)

  • ‘Speculative positioning’ is very high as shown in the chart below (this is also explained further down)

Check this chart on https://toggle.ai/chart/spx/spx.futures_positioning

So where does this leave us?

Well, one lesson we learned is to not fight the bull. But keep an eye on the chart above. If spec positioning gets back above the 25% mark, markets will struggle in the inevitable drawdown.

A buying opportunity perchance?

Option Trading 101: falling skew

We’ll keep this short and sweet. In jargon. “skew” is the difference between the cost of puts and calls. High skew: people want puts. Low skew: people want calls. Currently the skew is very low. People want upside exposure badly.

Futures Trading 101: speculative positioning

We’ll keep this sweet and short. Positioning is a measure of how many “fast” traders are on one side or the other of a trade. If a lot of speculators have bought into a stock, the stock is considered “fragile” because the speculators might stampede out at the first whiff of risk.

For more on this topic, please head to this FT story by Rober Armstrong and Ethan Wu.