Link to Report: Macro Volatility Digest
WHAT STANDS OUT:
- While equities sold off last week on disappointing Tech earnings, implied vols were fairly muted across asset classes. Equity vol ended the week unchanged, with the VIX® Index hovering around 19.5%. Even on Friday’s large sell-off, SPX® 1M fixed strike vols increased by just 0.6pt, while both put skew and put convexity fell as investors monetized existing hedges. The equity sell-off was almost entirely driven by Tech, with 9 of the 11 S&P sectors ending up on the week (led by Healthcare +3% vs. Comm Services -8.5%). The extreme sector rotation is another reason why index volatility has been so muted.
- Positioning in TLT options has flipped notably in recent weeks, with skew falling from near a 1-year high to near a 1-year low on stronger demand for upside calls. The fear of higher rates has dissipated, with more investors now positioning for long-end yields to fall on the back of a more uncertain macro outlook. The correlation between stocks and bonds has also flipped. The 1M rolling correlation between the SPX Index and the 10Y Treasury yield has jumped from -70% to +40% over the past month as investor focus shifts from inflation to growth risk.
- Positioning in single stock options has also shifted notably, with call demand dropping sharply and hedging demand increasing. The percent of stocks in the S&P top 100 trading with inverted call skew (a sign of extreme bullish sentiment) has fallen from a high of 44% in early October to just 10% now. Looking at retail flow on Cboe’s exchanges, retail put buying in the mega-cap Tech stocks hit a YTD high last week, accounting for 34% of all opening trades (vs. average of 24%).
Chart: Call Demand Has Dropped Sharply Over the Past Two Weeks
Source: Cboe
