Following up on last weeks overview:
Indices continued bleeding the US cash session all week. Rotation between Mag7 / semis continued with NVDA announcing a 15% price hike over the weekend. Despite the weakness, breadth remains strong & VIX trading ~15 handle over entire week. NVDA earnings Wed after close & Jackson Hole now key events to wrap up August. 30Y yields trading to new 20 year highs last week even as Treasury announced doubling of bond buybacks.
Weekend SPX straddles went out just under 50bps on Friday, lower end of the 10 year range. Rolling 1-DTE VRP for 1m & 3m periods continues to trade negative, although the losses mainly stem from a few big up days late July / early August.
Cross asset implied vols up across the board last week as 30Y yields pressuring other asset classes. Oil continues to trade higher, albeit slowly. Inflation concerns giving new life to Crypto as BTCUSD rose ~25% after the Treasury announcement on Thursday.
Slight steepening in SPX 25d skew, ATM vols continue to trade near lows while left tail got bid relative to OTM calls.
Looking at intraday price action:
Short 1-DTE straddles net down ~36pts last week, delta hedged performance net up ~50-100bps over the same period. US cash session bled throughout the week on oil & yields rising. Gap higher in SPX on Thursday following Treasury announcement got sold in US session with continuation lower on Friday. Overall SPX range has been within 1.5% since early August rally as dispersion is still strong.
Looking at the straddle cross-section, seeing continued trend into end of day although very weak. Mean reversion into London close somewhat returning but moves are muted as realized volatility dropped to 20yr lows.
Overnight markets sitting flat/drifting higher, however, US cash session steady drift lower throughout the week. Usual pattern for ‘low vol’ regime…
Realized volatility continues to drop with intraday ranges briefly making new 2 year lows. Incredible dispersion throughout the day.
Broad market continues to advance with large cap tech lagging since June. Short term implied correlations rising through July into August but still remain sub 10%.
NVDA earnings Wednesday after hours and subsequent reaction should see a large impact on index vol going forward. Lately NVDA earnings have marked multi month highs in Mag7.
With all the dispersion in indices VX steadily rolling down the steep curve. SVIX up nearly 100% from April lows with steep premium in Nov/Dec months built in.
Mixed performance across intraday straddles last week. 1-DTE straddles net up ~17pts over last 6 trading days, US cash session straddles net down ~20pts over same time period. Calls have performed poorly throughout the week across timeframes as yields & oil weighed down tech.
From the following post:
Variance Ratio back ~1 with no bias into this week. We’ve had an extremely tight range in SPX following the late July / early August rally. Looking for realized vol to pick up as we head into Sep and midterms.
From the following post:
VX short signal holding for Sep contract throughout the equity weakness. ~2pt spread with VX Sep so far which is a decent buffer for any small downside in indices. Looking forward, the Nov/Dec spread at nearly 5pts is a great setup for post midterms rally to end the year.
As always, don’t hesitate to reach out if you have any questions / suggestions!
Have a great week!
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