From Myron Scholes and Ash Alankar, Financial Times:
“So, the risk for investors has swung dramatically in recent weeks from protecting against the “bear” to the possibility of missing riding the “bull”. The options market is signalling that the distribution of possible future outcomes has changed considerably since the election, with the upside now more prominent.
Using options market prices to garner information about the distribution of future outcomes is similar to using crowdsourcing to gather information, such as the traffic app Waze. Market prices do convey important information about changing risks. For example, option prices suggest that Mexican assets are expected to deliver larger gains than losses, implying Trump won’t seek to impose headline-grabbing sanctions on the country. Although less pronounced, options market indicators are similar for China, Japan and emerging markets.”
Here is the link:
https://www.ft.com/content/0a64c6e6-b235-11e6-a37c-f4a01f1b0fa1#comments
Let’s not get too crazy over what option markets are telling us or not telling us, but the article is excellent…
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