Link to Report:Â Macro Volatility Digest
WHAT STANDS OUT:
- Implied volatilities rose across asset classes last week as oil prices gained on rising geopolitical tensions and investors pulled back from Tech stocks ahead of key earnings. Oil volatility jumped the most, with the OVX Index up over 9 pts wk/wk as Brent oil prices ended the week near a 1-year high. Credit and rates volatility all gained ahead of this week’s FOMC meeting. SPX® options are currently implying a one-day move of ~1.3% for Wednesday’s Fed meeting, the same as next week’s US midterm elections.
- While the VIX® Index ended last week mostly unch’d at 19.5%, it masked significant sector rotation underneath the index surface (e.g. Comm Svc down 6.2% vs. Energy up 1.6%). Concerns over the AI trade can be seen in the rising volatility premium for Tech stocks, with the QQQ-SPX 1M implied vol spread widening to ~10%, over 2 standard deviations above its long-term average and trading just below the July extremes. Retail investor positioning in the Tech stocks has also turned more cautious, with call demand in the mega-cap Tech names falling to a 6-month low while put demand jumped to a 1-year high.
- Sentiment in SPX options swung sharply last week as the initial market rebound saw investors chasing with upside calls before the sell-off at the end of the week led to renewed hedging demand. SPX downside convexity ended the week in the 99th percentile high.
Chart: QQQ-SPX Implied Volatility Spread Widening Ahead of Tech Earnings
Source: Cboe