Market is `underpricing' risk of more stock turmoil, BofA says

|About: Technology Select Sector SP... (XLK)|By:, SA News Editor

The options market is underestimating stock market volatility, especially in a week with events that can spur activity, such as Fed Chair Jerome Powell's speech at Jackson Hole on Friday, according to Bank of America's derivative analysts.

With extreme swings in the S&P 500 -- for example the VIX receded to 16.9 on Monday (now at 17.0) from over 24 last week -- it's "statistically unlikely" the market will calm that quicky, they wrote.

The market is "underpricing the likelihood that a body in motion will remain in motion," write BofA equity derivatives analysts including Michael Youngworth and Benjamin Bowler.

They recommend one-month straddles for ETFs such as metals and mining (NYSEARCA:XME), homebuilders (NYSEARCA:XHB), and tech (NYSEARCA:XLK).


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