The EQDerivatives Conference
On January 2023, KM cube participated in the EQDerivatives conference in Barcelona. The conference brought together leading experts from the finance industry to discuss the latest trends and insights in the options and volatility markets.
Options Market Expectations for 2023
One key topic discussed was the state of the options market in 2022 and what it suggests about expectations for 2023. Speakers from SIG Global noted that the VIX, a measure of market volatility, remained stable despite market fluctuations and that there were more 1% stock market declines in 2022 than in any year since 2008, but fewer 2% and 3% declines. They also noted that the market was not pricing in risk correctly, leading to lower demand for downside protection and a flatter skew. They recommended investing in the S&P 500 when the VIX is greater than 30 and selling when the VIX is lower than 20.
Implementing Dispersion Trading
Another topic of discussion was dispersion trading and the opportunities it presents. Panelists from Aviva Investors, Hellebore Capital, and Fulcrum Asset Management discussed the evolution of dispersion trading and how to implement it successfully. They noted that accurately predicting stock market volatility is critical to the performance of dispersion strategies and that there is still potential for the strategy to be profitable. A new dispersion index, the DSPX, was also introduced, which could help grow the market for dispersion trading.
The panelists also discussed opportunities in volatility investing. They emphasized the importance of finding assets that are truly uncorrelated to achieve true diversification and stressed the importance of looking at risk management from a variety of perspectives. They discussed the benefits of investing in defensive assets like global bonds and tail hedges to diversify a portfolio, as well as the potential for dispersion trading to generate alpha opportunities for investors.
Retail Activity – The rise of Daily flow
It was also noted that retail activity has a significant impact on daily flows in the options and volatility markets. Retail investors are increasingly using options to gain exposure to the stock market, leading to increased demand for products and services in this area. Retail traders drove a 52% increase in S&P option volume in 2021 with majority of the options traded having a time to expiry of 5 days or less.
In conclusion, the EQDerivatives conference in Barcelona provided valuable insights into the current state and future prospects of the options and volatility markets. KM cube is committed to staying at the forefront of industry developments and providing the latest and most comprehensive analysis to its clients.