- Jeff Jacobson from 22V Research suggests that a market bottom could be near when investors start overpaying for puts relative to calls, signaling panic and selling exhaustion.
- Despite an elevated VIX at 37 or 40, Jacobson notes that calls have been pricier than puts recently, reflecting fears of missing a rebound rather than widespread capitulation.
- He highlights a cautious market, with reduced risk appetite and uncertainty over trade wars and tariffs potentially delaying volatility sellers from stepping in as they did in past recoveries.
The market is currently displaying signs of fatigue, with the S&P 500 (^GSPC), Nasdaq (^IXIC), and Dow Jones (^DJI) under pressure as the CBOE Volatility Index, or VIX, continues to hover at elevated levels. Jeff Jacobson, managing director and head of derivative strategy at 22V Research, joined Yahoo Finance to discuss what these conditions might reveal about a potential tradable bottom. Jacobson pointed out that while the VIX is up slightly, he is more focused on the pricing dynamics between puts and calls, noting that he wants to see investors overpaying for puts as a sign of widespread panic and capitulation, which could indicate the market is nearing a bottom.
Jacobson explained that last week and even into this week, calls were relatively expensive compared to puts, reflecting a fear among investors of missing out on a quick recovery rally. However, he believes a shift where puts become significantly pricier than calls would signal that sellers are desperate to exit at any cost, a scenario he associates with a potential tradable bottom. He emphasized that this imbalance in options pricing would reflect the kind of exhaustion in selling pressure that often precedes a market rebound, though he cautioned that such a shift has not yet fully materialized.
When asked about the role of volatility sellers – investors who sell options to capitalize on high volatility – Jacobson acknowledged that current VIX levels, such as 37 or 40, might seem appealing on the surface. However, he suggested that the appetite for selling volatility might be muted compared to past instances, like the brief opportunity in August tied to carry trade concerns. He attributed this hesitation to a combination of reduced risk appetite following a market hit in March and the difficulty in pricing the ongoing uncertainty surrounding trade wars and tariffs, which are complicating investors’ ability to confidently re-enter the market.
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