Traders suddenly scramble for lottery-ticket hedges

  • Jason Goepfert

    Jason Goepfert

    Published: 2020-10-14 at 09:00:00 CST

There was a whole litany of concerns tearing at investors heading into October, the "scariest month of the year." It's been scary all right, but only for the new wave of short-sellers.

Heading into Monday, the most important ETF in the world had gapped up at least 0.25% at the open for 3 straight days, as eager buyers pushed stocks higher overnight. Not only that, latecomers kept up the pressure, and the fund closed higher than the open by at least 0.25% each of those days as well. It doesn't seem like much, but it's never happened before.

Despite the big gains on Monday, implied volatility actually increased, with a slight uptick in the VIX "fear gauge." As noted by Scott Nations, president of Nations Indexes, this was mostly due to a big jump in extremely far out-of-the-money put options. 

Tail hedging

At the same time, at-the-money put options have barely budged. This kind of scramble for lottery-ticket hedges on a big up day doesn't happen very often. It was more negative than not in the very short-term, but nothing much beyond a week. 

This is an abridged version of our recent reports and notes. For immediate access with no obligation, sign up for a 30-day free trial now.

We also looked at:

  • All signals since 1993 when SPY gaps and rallies for at least 3 days in a row
  • What happens when demand for tail risk jumps suddenly despite a market rally
  • Short interest on the Nasdaq is the highest in a decade
  • Most small-cap stocks are now in uptrends
  • Semiconductor stocks have rallied big for 4 days in a row
  • What happens when positive economic surprises taper off
  • Optimism on several agricultural commodity contracts is extremely high

The post titled Traders suddenly scramble for lottery-ticket hedges was originally published as on on 2020-10-14.

At, our service is not focused on market timing per se, but rather risk management. That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence. Learn more about our service , research, models and indicators.

Follow us on Twitter for up to the minute analysis of market action.

Not ready to signup up for a free trial yet?

Signup for our Daily Lite email to receive highlights of our daily report, research and studies.

Follow us on Twitter:

Find us on Facebook:

Subscribe to our Youtube Channel:

RSS Feed

Subscribe to the Blog RSS feed

Recent Blog Posts

As mentioned in...

Brought to you by:

Sundial Capital Research Logo