Heisenberg Report

The Most Volatile Month Since The Election And (Another) ‘Longest Ever’ Moment

Ok, well the VIX rose to its highest since August on Tuesday, underscoring Macro Risk Advisors’ Pravit Chintawongvanich’s warning from last week that although 2018 has so far been characterized by “stocks up vol up”, that doesn’t necessarily mean “stocks down vol down” in a meaningful selloff.

Another notable from yesterday was an observation from Bloomberg’s Cameron Crise about the ‘Nasdaq VIX’. Recall this:

Somewhat astonishingly, the VXN (the NDX VIX equivalent) closed Monday at its highest level since the election [and] this has happened with [only] a 0.5% drawdown from all-time highs. How anomalous is that spike in NDX vol? Quite, given the standards of the past three years. As you can see from the red star on the scatter below, since the start of 2015 the VXN has never been this high with such a small drawdown from the highs.

Well on Wednesday, Goldman’s Rocky Fishman is out with his latest and he looks at the same anomalous phenomenon that Crise noted in VXN, only from the perspective of the VIX.

“Monday’s move drew an outsized reaction of the VIX, with the spot VIX rising 2.8 points on the 67bp S&P 500 selloff (typically the VIX would rise just over 1 point on such a move),” Fishman writes.

Here’s a chart from Rocky underscoring the whole high implied vol. despite being near a record high in the underlying:

Fishman also makes two other observations worth noting. Namely these:

1) The past two days’ moves mark the first time the SPX has sold off 50 bp or more on consecutive days since 2016 (by far the longest ever between two such events).

2) January will end up being the most volatile month for the S&P 500 since the       2016 presidential election.

On the bright side for anyone who is still interested in trying to hedge (as opposed to champing at the bit to buy the dip on Wednesday) Rocky concludes by noting that “SPX hedges remain good value [as] implied vol is not high in the context of recent realized.”

 

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