Thread: Traders Brace For September Collapse

Traders Brace For September Collapse

By Jeff Kearns and Michael Tsang

Aug. 10 (Bloomberg) -- Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities.

Traders were betting the VIX, a gauge of expected stock swings, would increase 13 percent in the next five weeks, according to futures prices at the end of last week compiled by Bloomberg. That’s the biggest spread since August 2008, before the S&P 500 suffered the steepest two-month plunge in 21 years. The indexes have moved in the opposite direction 81 percent of the time over the past five years, Bloomberg data show.

VIX futures above the level of the index show investors expect fluctuations to widen and stocks to retreat. The S&P 500 has rallied 49 percent in five months, pushing valuations to the highest levels since December 2004. The S&P 500 gained 2.3 percent last week as reports showed home sales rose and the unemployment rate fell.

“It’s a danger sign,â€

Traders Brace For September Collapse

Joe Weisenthal|Aug. 10, 2009, 6:05 AM
comment 38

Tags: Investing, Wall Street, Stock Market, Economy

When everyone is thinking the same thing, it never happens, and what everyone is thinking right now is that when August is over, and we get down to business, this market's going to be in for some hurt.

Folks have been saying it all summer, as bulls make mincemeat of bears without mercy. And now traders are starting to place their bets on the wheels coming off soon.

Bloomberg: Options traders
are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities.

Traders are betting the VIX, a gauge of expected stock swings, will increase 13 percent in the next five weeks, according to futures prices compiled by Bloomberg. That’s the biggest spread since August 2008, right before the S&P 500 suffered the steepest two-month plunge in 21 years. The indexes have moved in the opposite direction 81 percent of the time over the past five years, Bloomberg data show.

http://www.businessinsider.com/traders- ... pse-2009-8