Macro Volatility Digest
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Equity Vol Markets Shrug Off Tariff Threat
• While Canada and Mexico tariffs were delayed last week, China tariffs went into effect – though market reaction has been benign so far. Chinese equities rallied, with most of the flow in FXI still focused on upside calls (skew remains inverted across all tenors). Even SPX® 1M implied vol – though it jumped initially on the tariff headlines – retraced quickly, ending the week unch’d at 13.2% and trading nearly 1 vol pt below realized. The equity vol markets are still pricing tariffs as a negotiating tactic, rather than an intended policy. Learn more in this week's Macro Vol Digest.
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WHAT STANDS OUT:
- While Canada and Mexico tariffs were delayed last week, China tariffs went into effect – though market reaction has been benign so far. Chinese equities rallied, with most of the flow in FXI still focused on upside calls (skew remains inverted across all tenors). Even SPX® 1M implied vol – though it jumped initially on the tariff headlines – retraced quickly, ending the week unch’d at 13.2% and trading nearly 1 vol pt below realized. The equity vol markets are still pricing tariffs as a negotiating tactic, rather than an intended policy.
- In contrast, we’re seeing the volatility risk premium in bitcoin rise sharply. While bitcoin surged in the wake of Trump’s win in Nov (+48%), the rally has stalled in recent weeks as bitcoin has struggled for direction amidst the barrage of new Trump policies. Realized volatility has collapsed as a result, with 1M realized vol falling from 70% to just 36%. Implied volatility has moderated as well, though much less dramatically, with the implied-realized vol spread widening to a high of 15 pts – the richest VRP across asset classes currently.
- While still a new product, we’ve seen volume pick up in the two Cboe Bitcoin US ETF index options (tickers CBTX and MBTX), with over 17k contracts trading in MBTX on Jan 31st and ADV so far in Feb running at 2600 contracts (+64% vs. Jan).
Chart: Bitcoin Volatility Risk Premium on the Rise
Source: Cboe