The “Yellen call” (also called the “Yellen covered call") is a call option named after Janet Yellen, who became Federal Reserve chairwoman in 2014. KPP Financial wrote in 2016:
“All this amounts to what I view as the opposite of the ‘Bernanke or Greenspan Put’ which is the “Yellen Covered Call.’ Covered calls are when someone owns a stock and sells a call option to buy it at a higher price while taking in the premium. If the stock goes up a lot total gains on the stock are limited. This is where we are today, except investors are not compensated by taking in any premium. Instead they are finally paying for the decades of free put options given by Alan Greenspan and Ben Bernanke.”
“At what point do they start calling it the Yellen call instead of the Bernanke put?” was posted on Twitter on April 16, 2012, but the terms “Yellen covered call” and “Yellen call” became popular when they were used in July 2014.
“Greenspan put"/"Fed put” (after Federal Reserve Chairman Alan Greenspan, from 2000), “Bernanke put” (after Federal Reserve Chairman Ben Bernanke, from 2003) and “Keynesian put” (after Keynesian economics, from 2016) are similar terms.
Wikipedia: Janet Yellen
Janet Louise Yellen (born August 13, 1946) is an American economist. She is the Chair of the Board of Governors of the Federal Reserve System, previously serving as Vice Chair from 2010 to 2014. Previously, she was President and Chief Executive Officer of the Federal Reserve Bank of San Francisco; Chair of the White House Council of Economic Advisers under President Bill Clinton; and business professor at the University of California, Berkeley, Haas School of Business.
Yellen’s ability to connect economic theory to everyday life is considered one of the defining characteristics of her career, and President Obama cited her understanding of the high “human costs” of unemployment when he nominated her to succeed Ben Bernanke as Chair of the United States Federal Reserve. On January 6, 2014, the U.S. Senate confirmed Yellen’s nomination. She was sworn in on February 3, 2014, making her the first woman to hold the position.
At what point do they start calling it the Yellen call instead of the Bernanke put?
2:24 PM - 18 Apr 2012
Tepper is unlikely to go on CNBC to tell you, but it is likely the benernake put has morphed into the yellen covered call.
1:25 PM - 9 Jul 2014
Fear Triggers Buying of VIX Calls
Events in Ukraine and Gaza show that volatility can increase on bad news much faster than it can decline on good developments.
By STEVEN M. SEARS
July 19, 2014 4:08 a.m. ET
The “Fed Put” may be destined to become the “Yellen call.”
Unfortunately for investors, the call is on the CBOE Volatility Index (VIX), not the stock market. And VIX calls increase in value when the stock market declines.
The potential recasting of the famous Fed Put—named in years past for former Federal Reserve chiefs Alan Greenspan and Ben Bernanke, whose policies seemed designed to support the stock market—follows recent statements from Janet Yellen, the central bank’s current chair, that investors are too complacent about risk. This suggests that the days of historically low options volatility, a byproduct of a market grinding higher, are poised to end as the Fed prepares to wrap up its bond-buying program.
Roger Farmer’s Economic Window
Tuesday, August 12, 2014
The Greenspan Put and the Yellen Call
In today’s Guardian, I make the case for a more aggressive financial stabilization policy, “No more boom and bust? The financial policy committee has time on its side”. I argue that the Bank of England’s FPC should buy shares in the stock market when the PE ratio is low, and sell them when it is high.
My response ...
I am not arguing just for a Greenspan Put: but also for a Yellen Call. It is just as dangerous to allow market bubbles as it is to allow them to crash.
Bernanke Put becomes Yellen Call $SPX500 http://dlvr.it/CBH87Z ~ via http://RobotsFX.org
3:58 PM - 17 Sep 2015
The Party Is Over: Goldman Sees “Limited Equity Upside” As “Bernanke Put” Is Replaced With “Yellen Call”
by Tyler Durden
Nov 20, 2015 5:59 AM
US equity upside: Limited by the ‘Yellen call’
We see limited upside to equities in 2016. Our US Portfolio Strategy team has a 2016 price target of 2,100 for the S&P 500, suggesting a very modest return of 5% (from current levels). Their framework assumes that 1) earnings per share will rise 10.1%, driven partly by ‘base effects’ in the energy sector and partly by improvements in global growth more generally, but that 2) the price-earnings multiple will fall approximately 5% (to 16.3x from 17.1x), as typically happens during rate-hike cycles. And, due to the delayed timing of rate hikes, the downside risk to price-earnings multiples is probably greater this year because the positive growth surprises that would normally accompany rate hikes are arguably behind us. Since our US GDP forecast envisions mild deceleration in 2016, equities and other risky assets will likely bear the brunt of rate hikes without the usual buffer of better growth data.
We also see a risk that the ‘Bernanke put’ will gradually be replaced by the ‘Yellen call’. The ‘Bernanke put’ captured the intuition that when the risks to growth, inflation and market sentiment are skewed to the downside and the Fed has an easing bias, monetary policy reacts aggressively to bad news. Now that these risks have receded, we expect the Fed will shift to an easing bias, implying that monetary policy will likely begin to react more aggressively to good news. The inflection point for this shift to an easing bias will arguably arrive in 2016, beyond which rallies in risk sentiment may be met by less accommodative monetary policy – the ‘Yellen call’.
KPP Financial (2016?)
“Bernanke Put” and “Yellen Covered Call”
All this amounts to what I view as the opposite of the “Bernanke or Greenspan Put” which is the “Yellen Covered Call.”
Covered calls are when someone owns a stock and sells a call option to buy it at a higher price while taking in the premium. If the stock goes up a lot total gains on the stock are limited. This is where we are today, except investors are not compensated by taking in any premium. Instead they are finally paying for the decades of free put options given by Alan Greenspan and Ben Bernanke. The market can go higher, but gains are limited until the economy returns to a place where higher bond yields are tolerable.
Today is not that day.
9 March 2016, The Wall Street Journal, “Forget the ‘Greenspan Put’; Fear the ‘Yellen Call’; A stronger market might be all the Federal Reserve needs to get back to raising rates” by Justin Lahart:
Before investors get too comfortable with the rebound in share prices, they should beware the “Yellen call.”
That is the opposite of the so-called Greenspan put that investors once thought underpinned share prices. And while that was supportive, the Yellen call is likely to keep stocks in check for some time.
New York City • Banking/Finance/Insurance • Sunday, August 28, 2016 • Permalink