Extreme Positioning in Options Markets Can Offer Trade Signals, Says Morgan Stanley
- Data suggests Mexico peso to gain, U.S. two-year swaps to fall
- Some assets move in opposite direction of positioning: MS
This article is for subscribers only.
Investors seeking winning strategies across asset classes might want to take a look at how traders are positioned in options markets to get an idea of what’s coming.
A Morgan Stanley study of about 20 assets from currencies to Treasuries found traders could earn “significantly above average” returns by looking for what the paper’s authors called extreme positioning. That’s when the gap between longs and shorts as a percentage of open interest was more than two standard deviations from what’s typical.