Following up on last weeks overview:
A quiet week for indices as we are in peak summer lull. CPI number on Tuesday came in line with barely any reaction from equity indices, yields did come off a bit after the print but finished the week back near recent highs. No major data releases this week, the only thing remaining with market moving potential until September is likely Iran headlines. Vixpiration on Wednesday & OpEx on Fridays also something to watch as realized vol drops to historic lows.
SPX weekend straddles went out ~40bps on Friday, lower only on holidays & 2017. Rolling 1-DTE VRP continues to trade ~0 for 1m & 3m rolling periods, in line with implieds dropping to range lows.
Cross asset implied volatilities fell across the board last week, only Gold & Oil trading above their 2Y & 5Y averages.
SPX skew barely budged last week, still flat on call buying & protection demand dropping to 2 year range lows.
Looking at intraday price action:
Unsurprisingly, short SPX straddles hedged/unhedged last week have done well. Barely any movement at all during the day with ranges dropping to ‘holiday’ lows level.
Looking at the cross-section, seeing some mean reversion return into London Close but too early to tell if we resume the usual pattern since Covid. Eod momentum holding quite well since March, on a slight uptrend.
Last week mostly just grind higher with overnight steady gains / intraday churn. Overnight performance over last 2 years runs at 2x US cash session so far.
Short dated realized volatility dropping to 2 year lows. Range based vol measures sitting at mid single digits with cl-cl measures not far behind.
Shorted dated implied correlations have risen slightly from early August but still remain mid single digits. VIXEQ (average component implied volatility) is dropping like a rock into mid 30’s after Mag7 earnings & Situational Awareness liquidation. NDX continues to be the only index not making new highs over last few months despite the bounce in semis / Mag7.
As one would expect, inverse VIX ETP’s soaring to new highs with implied / realized vol reaching lows on SPX. Very steady grind higher since March and very steep term structure with almost extreme Oct/Nov/Dec spread to spot (5+ pts.) Lots of forward vol already baked in for the midterms, likely see the usual pattern of grind lower into Oct/Nov with end of year rally…
Straddles lost across all time periods last week, 1-DTE straddles lost ~67pts, 36pts loss for shorting straddle overnight. After some movement early in the day, 2nd half of the day saw indices largely unchanged.
From the following post:
After the extreme prints in first week of August, markets have churned in a 20-30pt range for 2 weeks now. Bias is now long straddles into this week as we approach Vixpiration & OpEx.
From the following post:
Rolled from Aug to Sep VX on Wednesday last week 16→18. Performance YTD made new highs last week, with the overlay strategy catching up as calls have done very well on the rally into end of July/ early August. Not much to say apart from that, very quiet period in markets right now, term structure continues to be extremely steep with high forward vol priced in.
As always, don’t hesitate to reach out if you have any questions / suggestions!
Have a great week!
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