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S&P 500 Price Forecast: Options Traders Hedge Bets as VIX Soars

 The S&P 500, along side the broader US equity group, closed deep within the red on Wednesday as markets grappled with the threat of rising coronavirus infection rates and mounting uncertainty headed into the November 2020 election. a pointy jump in volatility accompanied recent price action, with the VIX index climbing above the 40 handle, which is that the highest reading since June. the increase in market volatility given the proximity to the election is in line with historical norms, but concerning for traders nonetheless.

The rise in volatility with the election now only 6 days away might not be outside of historical norms, but the election backdrop is materially different given the present pandemic. New virus cases are rising at an alarming rate within the us . The US reported 73,096 new cases for Tuesday, a 6.1% rise over the past 7 days, consistent with The COVID Tracking Project.

Europe’s daily cases also are accelerating at an alarming pace. In fact, France just announced a second nation-wide lockdown Wednesday afternoon. French President Macron said, “The virus is spreading throughout France at a pace which even the foremost pessimistic forecasts didn't anticipate.” France has seen nearly 1,700 deaths over the last week consistent with ECDC data.

Examining options traders’ positioning via Cboe’s Put/Call Ratio, which compares the quantity of put options traded relative to call options, reveals a reading of 1.148. this is often the very best read since early May. a worth above 1.0 indicates equity index options trader positioning is skewed more heavily toward put options relative to call options, which suggests a bearish bias.

Looking IG Client Sentiment data, can analyze S&P 500 trader positioning through the lens of retail CFD traders. the foremost recent IGCS report shows the ratio of traders short to long at 1.17 to 1. the quantity of traders net-long increased 12% from yesterday, and traders net-short decreased 12 percent over an equivalent timeframe. Unlike options traders, who tend to follow price trends, retail CFD traders appear to be increasing their bullish bets on the S&P 500. The recent movement suggests a bearish signal as we normally take a contrarian view on retail positioning.