Market Measures

Employment | Analysis

| Nov 6, 2014
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    Market Measures

    Employment | Analysis

    Nov 6, 2014

    A major market indicator that is produced once a month is the Employment Situation report. This is a report that looks at the unemployment rate in the United States, which is a major driver of the economy.

    Due to the significance of the Employment Situation summary, we wanted to see if there was any impact on the major equity indices when it was released (it is usually released on the first Friday of every month at 7:30am CT).

    Today, Tom Sosnoff and Tony Battista looked at the movement that is followed by the release of the statement, compared to a random day in the market. How well do the "experts" predict this number and how much does the market move around the release date? More importantly, can retail traders use this information to make money?

    Before diving into the tastylive's research, here's some context around the "Expert" consensus:

    • On average, the absolute monthly change in employment has been 81,000; the experts have been off by an absolute difference of 56,000 jobs.

    • In 21% of months, the expert consensus has been off entirely (there were expected gains, but instead had losses - or vice versa).

    Our research isolated days where the employment number was released and compared the move in the market to the day before. This kept a consistent number of occurrences .

    expiration into the release of the Employment Situation Summary (1 day before) with the key assumption of higher implied volatility rank in mind.

    As it turns out, strangle profits were higher on employment days due to the higher implied volatility than that of random market days.

    All in all, we have found that on average, the movement on a day when the Employment Situation report is published has the same, if not smaller, movement of a random day in the market!

    tastylive's key takeaways:

    1. The market appears random. There are no statistical difference in prior probability of the market going up/down between employment release days and random days.

    2. Historically, implied volatility decreases after the release of employment numbers; we have seen that in 58 percent of instances.

    3. Strangle profits (at 0.15 delta) are higher on employment days compared to random days (i.e. due to the higher average implied volatility that contracts after the employment information is released).

    This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.

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