Financial markets dropped today on news of a new COVID variant: Omicron. The Dow Jones Industrial Average fell more than 1000 points and EMEA and Asia/Pacific markets were also showing red. Cryptocurrency traders saw their portfolios share a similar fate.
Markets have reacted in a uniformly negative fashion to the new variant because it has many new mutations that make it more transmissible and that increase the risk of reinfection. It’s officially classified by the WHO as a variant of concern -- the same classification as the Delta variant.
Omicron can become even more dangerous: it could become a Variant of High Consequence (VOHC) -- a strand of the virus against which vaccines and therapeutics are ineffective. After news about Omicron came out, Kalshi traders began pricing the chance that the CDC identifies a VOHC by the Spring at $0.54, up from $0.21, more than doubling that chance in only two days.
If Omicron is classified as the first-ever VOHC, that could prompt a return to the darkest days of the pandemic, with new lockdowns, mask mandates, and border restrictions. Right now Omicron is primarily located in South Africa, but a virus this infectious is bound to spread.
What’s different this time?
Traders’ response to Omicron has been different from their response to past COVID variants, because now they have a way to protect themselves. The Kalshi exchange offers a market, VARIANT-002, which measures whether Omicron will make up more than 1% of U.S. COVID-19 cases by the New Year. This tool lets people protect themselves against adverse outcomes in the rest of their portfolio. The market is currently trading at $0.39 Yes, but continues to quickly react to new information in these early stages.
How to hedge?
If you’re worried about schools being closed, new supply chain crises, or a weakening labor market, you can buy Yes. If Omicron does spread quickly, these events are more likely to occur. However, you’ll also be receiving large profits to offset any damage.
Other strategies
With so many competing theories, policy responses, and information blasts regarding COVID, there are bound to be temporary mispricings in the Kalshi market. Owning a stake in your predictions allows you to gain financially from your expertise, and for you to contribute to more accurate information.
Secondary Shockwaves
The emergence of Omicron has ricocheted through the markets: the probability that San Francisco and New York City will close indoor dining has climbed, from around 1% to closer to 10%. The likelihood of recession has also increased in recent days, back to 15% after reaching a low of 8%.
More advanced investing strategies might include taking positions in these markets, depending on your belief about the effects of Omicron. The markets are changing fast as news comes out; Omicron has spread to Belgium and the CDC and WHO are investigating its properties. The only place to stay up-to-date with the latest in COVID risks is on https://kalshi.com.
Note: the content of this article does not constitute professional or financial advice and is information of a general nature