The market is closely watching the Federal Reserve's upcoming interest rate adjustments, while an important earnings season is also approaching, and the threat of a US government shutdown is becoming increasingly severe. Against this backdrop, the US stock market is facing another risk factor. According to Goldman Sachs' derivatives team, the historical price volatility of the S&P 500 index in October is about 20% higher than in other months. The Goldman team prefers to buy short-term options on trading days with catalysts, while avoiding volatility contracts during non-event periods, to capitalize on the turbulent conditions of this earnings season.
Goldman Sachs' derivatives team stated that since 1928, the historical price volatility of the S&P 500 index in October has been about 20% higher than in other months. In recent decades, this figure has been even higher, as the fourth quarter typically brings a wave of positive corporate news. Secondly, historical data from the bank's derivatives team shows that the actual volatility of the S&P 500 index increases by 26% from August to October.
John Marshall, head of derivatives research at Goldman Sachs, said: "October's market volatility is by no means accidental. It is a critical period for many investors and companies that need to assess their annual performance by year-end. These pressures drive increased trading volume and volatility, as investors focus on company earnings reports, analyst meetings, and management's forecasts for the coming year's performance."
As options traders begin preparing for a year-end rally and gradually abandon put hedging strategies (due to optimism about further interest rate cuts), the risk of expanded price fluctuations follows. Despite losses over the past three trading sessions, the S&P 500 index is still up 2.4% this month, on track for its best September performance since 2013.
However, given that the US economy is still developing steadily, there is no absolute guarantee that the Fed will further ease policy. To navigate the current market volatility, Goldman Sachs prefers to buy short-term options on days with significant events, while avoiding volatility products on trading days without major events. Goldman Sachs data indicates that the upcoming earnings season is typically the period with the highest stock price volatility throughout the year.
The team has mapped out over 450 significant events beyond earnings releases over the next four months that could significantly impact stock markets in the US, Europe, and Asia. This list includes the Victoria's Secret mid-October lingerie show, the Dior fashion show hosted by LVMH during Paris Fashion Week, Tesla's (TSLA.US) annual shareholder meeting, and events from companies like Home Depot (HD.US). Earnings reports from healthcare stocks also constitute a large part of this list. This summary report focuses more on company names within the Goldman team's coverage that have tradable options.
Marshall wrote: "We believe each of these events has the potential to present volatility opportunities. This list primarily outlines the high-impact events we will focus on, which are key targets when we seek directional options buying opportunities."
