Options Signal Stock Peril as Analysts See Profits (Update2)
By Daniel at 7 December, 2009, 9:45 am
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By Jeff Kearns and Lynn Thomasson
Dec. 7 (Bloomberg) — Forecasts for the fastest U.S. earnings growth in 15 years are failing to convince options traders that the Standard & Poor’s 500 Index will extend its biggest rally since the 1930s.
S&P 500 options to protect against declines in stocks over the next year cost 22 percent more than one-month contracts, the highest since 1999, data compiled by London-based Barclays Plc and Bloomberg show. The gap shows concern that analyst estimates for record earnings by 2011 may prove exaggerated, endangering an advance that pushed the S&P 500 up 63 percent since March.
“It’s telling you that there’s severe anxiety about the future,” said Paul Britton, chief executive officer of New York-based Capstone Holdings Group LLC, which oversees about $1 billion. “People want to protect next year, and there’s a sense of urgency.”
The last time the average gap between one-year insurance and 30-day contracts was higher was five months before the S&P 500 began a 49 percent plunge in March 2000 during the collapse of the Internet bubble. More than $5 trillion has been restored to U.S. shares this year after the government lent, spent or guaranteed $11.6 trillion to end the worst recession in seven decades.
Implied Volatility
There’s an 80 percent chance stocks will plunge next year, John P. Hussman, whose $5.5 billion Hussman Strategic Growth Fund beat 99 percent of peers in 2008, wrote in a posting on his Web site Nov. 30. Albert Edwards, Societe Generale SA’s London-based global strategist, wrote in a Dec. 1 research note that U.S. equities will fall below their March lows as the global economy weakens.
(more)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWR6YjdVs0s4&@#$%&!=6
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