Some Investors Bet on A Reversal…WSJ

The Wall Street Journal suggests that despite a rallying stock market and volatility at extremely low levels, some traders are buying protection against a large move down:

“A measure that tracks investors expectations of “tail risks”—events with a small probability of happening—has climbed 15% this year through Jan. 20, when it reached its third-highest level on record. The gauge, called the CBOE SKEW Index, is based on out-of-the-money options prices on the S&P 500 and considered by some traders to reflect the probability of “black swan” events—drastic moves in the stock market.”

Here is an excellent chart showing various measures of market sentiment:

Market volatility is low (VIX chart), hedge funds are extremely net short volatility (think contrarian), the bearish/bullish ratio is also very low so some traders are going the other way by buying deep out of the money options…

 

http://www.wsj.com/articles/as-stocks-charge-higher-some-investors-bet-on-reversal-1485301163