NEW YORK - There is more behind the recent slide in U.S. stocks than weak data, according to JPMorgan Chase’s head of quantitative and derivatives research, who says options hedging and technical selling contributed to the gyrations and could help the market reverse course and rally.
Even Friday’s modest positive move could spur technical buying and spell good news for equity bulls, Marko Kolanovic wrote in a note published as the market rallied on encouraging U.S. employment data.shed 3% over the first two days of October, logging its worst two-day performance since early August, after employment and manufacturing data revived worries that the U.S.-China trade war is taking an increasing toll on the U.S. economy.
When investors buy S&P 500 put options, they are buying insurance against a drop in the market. Dealers who sell this insurance are on the hook if the index drops sharply. In addition to this options-related selling, the recent sharp drop in the S&P also prompted selling by commodity trading advisors - firms that follow trends and are specialists in the futures markets.
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