October: Volatility ahead?

September 30, 2017 10:14 AM
U.S. economic data & select global influences

A  year ago we pointed out that despite October’s history as a month in which market crashes occur, the major stock indexes have average positive returns in October and the month falls in the middle of the pack in terms of average performance during specific months. What is clear is that volatility — measured by the range of price movements — tends to pick up in October. Not only has October produced market crashes, but it has also been a month that has seen significant market spikes. The broadest range in price in the S&P 500 per month has occurred in October in four of the last nine years.

So what does that tell traders as we enter October 2017? If they are writing options, it would suggest going further out on the price curve in selecting strikes or perhaps to be careful of short volatility positions.

The bottom line is that stocks tend to move more significantly, in either direction, in October. And as of the end of July 2017, with all the major stock indexes at or near all-time highs, the risk of a major move is clearly to the downside.   

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.