If intraday trading has left you reeling, you might not be alone.
Whereas 2021 saw a considerable drop in intraday moves, 2022 by counterpoint has shown a steady increase in intraday volatility.
In July, SPX averaged 2% swings intraday. In the past, the index would hold this level only for weeks at most, whereas now we see the market hold this volatile regime for months!
On four occasions in 2022, the index has retraced from a 2% intraday loss to flat or positive.
What does this mean?
The reason for large intraday swings
These swings show the tussle between falling liquidity and the emergence of value.
On the one hand, liquidity is falling: Market makers have withdrawn liquidity, institutional investors are shifting to cash, and retail participation is reduced by weak price action.
On the other hand, value is emerging: An increasing number of stocks are reaching historical valuation lows, and options markets show extreme skew.
Finally, the macroeconomic news flow has been very volatile, with large surprises both on the growth and inflation side.
So what’s the opportunity?
This can be a rich environment for intraday traders, especially those seeking to play the reversion of large intraday moves.
Option traders in particular find this to be a fertile environment. Intraday swings seem to have shifted to a new regime, accounting for around 8% of the value of VIX as opposed to 3% in calmer periods.
Low liquidity, a volatile macro environment and the emergence of value make for a compelling intraday trading environment. So if you like to play intraday options on extreme days, this might be the right time for you.
Idea Spotlight: Las Vegas Sands
Despite a reported loss of $290 million during its most recent earnings report, shares of Las Vegas Sands (LVS) have seen a nice bump, thanks to Macau reopening (aka playground of the rich). Volatility indicators for Las Vegas Sands reached a recent low, and historically, this led to a median increase in price of 15.44% over the following 6M. TOGGLE analyzed 20 similar occasions in the past to produce the median projection and this insight received 7 out of 8 stars in our quality assessment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.