Are S&P 500 straddle trades as cheap as they seem?
Several commentators, including Cornerstone, are highlighting how cheaply investors can now put on one-week straddle trades, in which they buy 1-week at-the-money put and call options to position for a spot move in either direction. Given that the S&P 500’s five-day high-low range has recently been above 4%, as the second chart shows, a straddle that pays if the market moves more than 1.1% in either direction over a five-day period looks like a decent proposition. However, context matters here. This is a big week for S&P 500 quarterlies and the data show that the average move in the index has not been large during recent earnings weeks. On paper, then, the straddle may not be as cheap as it looks. However, for investors who have a high conviction viewpoint on earnings news, macro developments, or even the unfolding story of the Delta variant, positioning for these via a straddle is relatively inexpensive, especially if they are prepared to trade the intraday moves.
One-week straddle costs in the S&P have dipped to 1.1%
Source: Cornerstone Macro
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