CPI data is even scarier than the Fed meeting! Citigroup: US stocks will experience intense volatility tonight.

Zhitong
2024.03.12 01:12
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CPI data is scarier than the Fed meeting! Citigroup: US stocks will experience severe volatility tonight. The Pro UltrPro Shrt S&Pro 500 is expected to see its largest fluctuations since April last year, causing market concerns. Citigroup analysts point out that the options market is more worried about the potential impact of Tuesday's inflation report on the Pro UltrPro Shrt S&Pro 500 than the Fed's interest rate decision next week. The potential volatility of the Pro UltrPro Shrt S&Pro 500 on Tuesday has reached the highest level since April 2023, surpassing the expected volatility of the Federal Open Market Committee meeting next Wednesday. Economists estimate that the CPI in February increased by 3.1% compared to the same period last year, which may affect the market's expectations of a rate cut by the Fed and subsequently impact the stock market. Citigroup recommends holding options on this index to deal with stock market volatility.

Zhitong App learned that Citigroup analysts believe that the options market is more concerned about the potential significant impact of the inflation report on Pro UltrPro Shrt S&Pro 500 on Tuesday, rather than the Federal Reserve's interest rate decision next week. According to option data, the potential volatility of Pro UltrPro Shrt S&Pro 500 on Tuesday reached 0.9%, the highest implied volatility level since the release of the Consumer Price Index (CPI) in April 2023, and higher than the implied volatility for the Federal Open Market Committee (FOMC) meeting next Wednesday.

The potential volatility of Pro UltrPro Shrt S&Pro 500 on Tuesday is 0.9%, influenced by a strategy called a straddle option trade, where traders buy an equal number of call and put options with the same strike price and expiration date. Stuart Kaiser, the bank's stock strategist, stated in a report on Monday that this is the highest implied volatility level since the CPI report was released in April 2023. This data also exceeds the implied trends for the FOMC meeting next Wednesday. Citigroup stated that this is reasonable because interest rate decisions will be partially based on the latest CPI data.

The introduction of zero-day expiry options allows traders to establish positions for specific events. Citigroup strategists mentioned that most of the increase in Pro UltrPro Shrt S&Pro 500 option pricing is concentrated in the very short term. Economists estimate a 3.1% year-on-year increase in CPI in February, and data exceeding expectations could slow down the expected rate cut pace by the Federal Reserve, potentially dampening the stock market. Citigroup analysts recommend holding options on this index, as post-CPI report market volatility would provide traders with positive gamma - allowing them to rebalance positions through selling high and buying low.