With U.S. Treasury Secretary Janet Yellen’s “X date” for Congress to raise the federal debt ceiling just two weeks away, some on Wall Street are seeing an opportunity in cheap option contracts that would yield large returns if U.S. stocks sold off like they did during the debt-ceiling drama in Congress in 2011.A... With U.S.
Between July 22 and Oct. 3, 2011 for example the S&P 500 fell 22%, according to FactSet. Stocks continued to fall even after a debt-ceiling deal passed Congress that year as Standard & Poor’s stripped the U.S. of its AAA credit rating shortly after. Some on Wall Street fear that Congress might only be motivated to strike a deal if markets turn chaotic.
The Nations TailDex, a gauge of demand for options that would pay off if the S&P 500 fell 10% or more, stood at 15.12 on Thursday. It traded as high as 22 back in March. U.S. stocks have been much more placid in 2023 than in 2022, when daily moves of 1% or more in either direction were relatively common.
Despite this, the S&P 500 and Nasdaq have risen in 2023, erasing some of their losses from 2022, when stocks suffered their worst calendar-year pullback since 2008, according to FactSet.