The U.S. Markets and asset classes the world over are seeing a low volatility phase. Even though the earnings and forward guidance in this result season has been pretty good and we have seen a good amount of Mergers and acquisitions happening, the option market has been lying low. All that could change this week with the U.S. GDP data, Fed meeting and jobs data on Friday.
Jim Strugger, derivatives strategist at MKM Holdings discussed the low volatile phase in the U.S. Equities market and his options strategy for playing Twitter Inc (NYSE:TWTR) ahead of the company releasing its earnings tomorrow, with Olivia Sterns on Bloomberg’s ‘Market Makers’.
“[...] it is the summer doldrums for sure, but certainly among professional investors they are looking to capture the sort of convexy that comes with Trulia, stock that goes up very sharply over a short period of time and you get that with options. So, again, if we revert back to sort of 06, 07, 08 when there was a lot more activity in the last cycle when M&A was this active, I would expect to see activity pick up,” Strugger said.
Mr. Strugger is of the view that with the kind of volatility levels being witnesses, investors must start putting up hedges. He considers hedges as a price one has to pay to stay in this market. On Twitter Inc (NYSE:TWTR), Strugger suggested that although he likes the company, he is cautious from a short-term perspective as the metric that people care about from the company is its monthly active users and according to third party data, it might be a little light.
“[...] What we are going to do is we are going to hedge long positions, the way we are going to do that is just use weekly options. Implied volatility is high enough that we are able to do that and create sort of light band round long stock position. We can come in, we can sell 43 strike calls that expire this Friday, buy 33 and half strike put,” Strugger added.