‘Unusual gap’ in stock options presents investors with big opportunity, Janus Henderson says
An unusual divide in the options market is creating an opportunity for investors to generate higher income from individual stocks, according to Janus Henderson.
TL;DR
- A significant gap exists between the implied volatility of individual stocks and the broader S&P 500 index.
- This divergence allows investors to earn higher premiums by selling call options on individual companies compared to the index.
- The trend is influenced by thematic trading and the growth of single-stock ETFs, amplifying individual stock movements.
- The rise of covered-call strategies has suppressed index volatility, making the contrast with single-stock volatility more pronounced.
- Active managers can leverage this opportunity for greater income generation, flexibility in strike prices and expiration dates, and by adjusting the proportion of stock covered by options.
- This strategy may be missed by systematic approaches that do not account for individual stock valuation or market conditions.