Stock volatility is making a comeback amid worries about tech profits, unhinged retail trading and tepid economic growth.
The Cboe Volatility Index, known as the VIX, jumped to 37 on Wednesday — the biggest one-day move since the pandemic-spurred market crash in March. The gauge was trading at 31 as of 7:24 a.m. New York time on Thursday, near the highest since November.
The bulk of yesterday’s gain came in after-hours trading, when Tesla Inc., Apple Inc. and Facebook Inc. all fell after reporting results.
The futures curve of the VIX, which measures the 30-day implied volatility of the S&P 500 Index, flipped to “backwardation” — indicating investors expect more volatility in the near-term.
The S&P 500 Index suffered its biggestrout since October on Wednesday as frenzied retail trading and lingering fears over the economic recovery sparked a wave of selling. All that may have spurred an appetite for derivatives to hedge portfolios as stock valuations flirt with records.
“The VIX spike had to be driven by S&P 500 options in their last 15 minutes of trading,” said Vance Harwood of consultancy Six Figure Investing. “Likely they were following the ~1% drop in SPY after close (or vice versa).”
Even before the selloff, implied volatility was wellabove its decade average amid concern over vaccine rollouts and technical forces such as increased buying of call options.
“For the last two weeks, vol was extremely strong and would not break down on days where the market was doing well,“ said Kris Sidial of hedge fund Ambrus Group.
Anothertheory for the elevated VIX is the imbalance between supply and demand.
Many short-volatility players have exited the market since March and exchange-traded products that short VIX futures remain a fraction of their former size. That could have exacerbated the VIX’s upward move as buyers of protection greatly outnumbered sellers.
“At the end of the day, no one wants to go home short volatility right now,” said Brent Kochuba at analytic service SpotGamma.
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