Downside Risks Rise as Tech Volatility Spikes

Link to Report: Macro Volatility Digest

WHAT STANDS OUT:

• Implied volatilities jumped across asset classes last week as markets grappled with rising US-Iran tensions, higher bond yields, and a sharp pullback in Tech. Equity volatility led the increase, with the VIX^® Index up over 6 pts wk/wk to 21.5%, rising from the 14^th percentile low to the 86^th percentile high. Within equities, Tech stocks led the spike in volatility, with the QQQ-SPX^® 1M implied volatility spread widening to a 4-year high of 11% (see chart below). Both QQQ and SPX option volumes set new records on Friday, with SPX option volumes hitting a new high of 7.78M contracts (of which 64% was in 0DTE options).
• Single stock volatility increased as well, though more marginally, with the VIXEQ^SM Index up just 0.3 pt as investors gravitated toward index hedges for protection. In other words, implied correlation jumped higher, with the COR1M Index more than doubling to 15% - albeit still trading at historically low levels. This suggests the sell-off, at least so far, remains mostly a positioning-driven unwind at the sector level, rather than a much broader macro sell-off. In fact, 6 of the 11 S&P sectors were up last week.
• After weeks of chasing the right-tail, investor focus finally shifted last week to the left tail as hedging demand picked up notably. SPX 1M skew surged from a 1-year low to the 72^nd percentile high. Retail sentiment also turned more bearish, with put buying making up 27% of all retail opening activity in the mega-cap Tech stocks on Friday (vs. just 15% a week ago).

Chart: QQQ-SPX Implied Volatility Spread Surges to 4-Year High

^{Source: Cboe}

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