Option-implied probability refers to the likelihood, as inferred from the pricing of options contracts, of a specific event occurring within a certain timeframe. In this case, the “20% drop in S&P 500” indicates the probability that the S&P 500 stock index will experience a decline of 20% or more. Traders and investors use this metric to gauge market sentiment and risk perception, helping them make informed decisions about portfolio management and hedging strategies. A higher implied probability suggests increased market uncertainty and perceived risk of a significant downturn in stock prices.
Option probability
of 20% drop pic.twitter.com/uBWjoHLWl8— Win Smart, CFA (@WinfieldSmart) April 8, 2024
Goldman:
Strong economic data but modest 1Q earnings outlook with only 3% S&P 500 EPS growth pic.twitter.com/BSCNk0xNES
— Win Smart, CFA (@WinfieldSmart) April 6, 2024