Shares ended the day greater amid an implied volatility crush, with the dropping sharply. The VIX closed the hole from its vital rise on Thursday, October 31.
Extra fascinating was the VIX 1-Day rose by, get this, 110% to shut at 30.6.
Yesterday’s time period construction exhibits a big improve in implied volatility from yesterday, rising from round 13.3 to roughly 27.
Extra fascinating, nonetheless, was how implied volatility different by strike value, with greater strike costs experiencing a bigger improve than decrease ones.
For instance, the IV for the 5,810 strike value for right this moment’s expiration rose to 25.85 from 22.1, a rise of three.75 proportion factors.
In the meantime, the IV for the 5,750 strike rose to 27.57 from 24.67, a achieve of two.9 proportion factors. This implies a powerful demand for greater strike costs yesterday.
When reviewing choices buying and selling for right this moment’s expiration, we discover that throughout the 98% to 102% moneyness vary, 7 out of the highest 10 trades have been name contracts.
That exercise seemingly explains why the VIX 1-Day rose so sharply whereas the additionally moved greater, with the VIX index falling steeply, contributing to a lot of the transfer within the broader index.
In the meantime, the S&P 500 didn’t pull again yesterday as I believed it would.
I additionally wasn’t anticipating such a fast decline within the VIX and implied volatility. There’s clearly nonetheless a threat of an implied volatility crush right this moment, and whether or not the market rallies on that crush will depend upon how the choices market is positioned total.
If there weren’t an election with pending outcomes, I’d have a look at this chart and see a bearish setup, with a breakdown from the diamond sample and a clear break from the rising wedge.
However till the S&P 500 breaks under 5,725, we have to respect the upside potential.
The fee rose by almost 8 foundation factors all through a lot of the day after hotter-than-expected ISM companies knowledge however then pulled again following a powerful 10-year Treasury public sale at 1 PM. We’re nonetheless ready to see if the 10-year can push past 4.40%.
