Link to Report: Macro Volatility Digest
WHAT STANDS OUT:
- Implied volatilities were mixed last week as oil prices continued to climb and the Fed came out more hawkish than expected. Brent oil prices briefly jumped to over $126/bbl – their highest level since the Iran conflict started – while oil volatility (OVX Index) remained elevated in the 88th percentile high. In contrast, the VIX® Index ended the week near a 3-month low of 16.9% as the SPX Index hit an all-time high on the back of better-than-expected earnings.
- As we enter the 3rd month of the Iran conflict, what stands out is just how sharp the rebound has been in April compared to the sell-off in March. In fact, since the Iran War started, the market has been more volatile on up days than down days (SPX realized vol of 16.9% on up days vs. 14.6% on down days) which is extremely unusual. It suggests investors were well hedged coming into March and it’s the rally higher that’s caught people off guards.
- This can also be seen in the significant flattening in SPX skew as demand for call options has surged with investors turning to options to help lever their upside exposure. SPX 3M call skew (25-delta vs. 50-delta ratio) has now jumped to the 60th percentile high while put skew has fallen to the 14th percentile low over the past year.
Chart: SPX Index Has Been More Volatile on Up Days Lately
Source: Cboe
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