Where’s The Risk?
2022 has seen wild swings in investor sentiment, which is obvious considering the state of the economy. With bond yields rising higher and higher, sentiment towards risky assets has plummeted in the stock market. While this is obvious, it’s intriguing how deep this goes, and how widespread it is as this is becoming a trend in the finance industry as a whole.
Risky stocks are down big as we’ve said before, but deeper in, the leverage market isn’t doing too well either. Let’s look at the speculative investor’s favorite tool: options. Net call option volumes sit under 400,000 per day, a far cry from the highs of 1.6 million per day we saw during the GameStop run. According to Credit Suisse, the price of calls is decreasing relative to puts, or what you would consider bearish options, which displays the negative sentiment regarding stocks. Options help magnify your investment in a stock, and activity is slowly trending towards pre-pandemic levels. Overall, bearish sentiment is close to 60 percent among individual investors according to the American Association of Individual Investors, the highest since 2008, but economists believe that this indicates the market is close to the bottom.
However, the most interesting part is the performance of crypto as it falls under the risky asset class. Crypto, known as a hedge to the stock market, has been anything but that, with Bitcoin falling by more than 25 percent this year in conjunction with the S&P 500. We already discussed the state of the NFT market, and this seems to be a new classification in the eyes of investors. Crypto will be considered a risky asset, and they believe interest rates will affect it in the same way. It may feel all assets are unsafe, but there will always be an opportunity to keep an eye on.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
