Friedlander: High Black Swan Risk

“Players are pricing in the highest chance of an outlying black swan event in the next 30 days. The pricing currently is (for) a 15% chance of a two standard deviation move in the next 30 days. … So (it’s a) yellow flag for sure. Stay alert, stay alive!” wrote Roberto Friedlander, head of equity trading at Brean Capital, in a note to clients Tuesday.

Investors fear a “black swan” catastrophic event in the financial markets right now more than ever before. At least according to the CBOE Skew Index, which measures the prices of far out-of-the-money options on the S&P 500. … Put simply, traders are buying options that pay off only if the stock market drops a whole lot.

The measure is up 30% since the end of September, including a 10% spike for seemingly no reason on Monday.

At its Monday closing level of 148.92, the Skew Index is higher now than levels hit in 2006 before the housing bubble popped and 1998 amid the Long-Term Capital Management implosion. It’s above a level hit last year as markets sold off aggressively near the end of the year and as fears of an Ebola breakout spread.

— Excerpt contributed by Jason Kelly


Z-val: Roberto Friedlander
Date: 10/13/15
Disposition: Immediate-Term Bearish
S&P 500 on 10/13/15: 2004
S&P 500 on 11/13/15: 2023
Change: +1.0%
Judgment: Wrong

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