Options Traders Brace for Biggest S&P Jobs-Day Swing in a Year

Jessica Menton, Bloomberg News

, Source: Citi Global Markets

(Bloomberg) -- The options market is betting that stocks will swing widely after Friday’s US jobs report, which traders expect will offer more clarity on how much the Federal Reserve may cut interest rates this year.

The S&P 500 Index is expected to move 1.2% in either direction after the release, based on the cost of at-the-money puts and calls expiring Friday, according to Stuart Kaiser, Citigroup Inc.’s head of US equity trading strategy. That figure, based on the prices of S&P straddles as of Wednesday’s close, is the largest implied swing ahead of an employment report since March 2023, he said.

“Everyone is pivoting to Friday’s jobs report now because the labor market determines the trajectory of inflation,” Jeff Klingelhofer, co-head of investments at Thornburg Investment Management, said over the phone. “If the labor market is notably strong, that won’t change the Fed’s bias that the next move is a rate cut, but it means the likelihood of borrowing costs falling later this year ends up getting pushed out even further.”

Read more: Traders Expect Biggest Fed-Day Move in S&P Since 2023, Citi Says

While the S&P 500 fell 4.2% in April — its worst monthly showing since September — US stocks have still been locked in a tight range. The benchmark equities index has been remarkably calm, moving 1% or more in either direction during just 17 out of the 84 trading sessions in 2024, according to data compiled by Bloomberg, while going 300 sessions without closing down at least 2%, its longest stretch since 2018.

The VIX index, which reflects the 30-day implied volatility of the S&P 500 based on options values, has fallen back after jumping in mid-April to the highest level in more than five months.

Fed Chair Jerome Powell reiterated on Wednesday the need for more evidence that inflation is cooling before cutting borrowing costs from a two-decade high. He also stopped short of signaling that rate cuts were likely this year or that rates were at a peak, which he has said previously.

Friday’s jobs report, set to be released at 8:30 a.m. in Washington, is forecast to show non-farm payrolls growth moderating to a still-strong pace in April amid stable, low unemployment. Employers are estimated to have added 241,000 workers last month following March’s whopping 303,000 increase, while average hourly earnings likely rose 0.3% from a month prior.