While last week’s volmageddon may have subsided, its reveberations remain with many traders – certainly the co-head of equity trading at Goldman Sachs – uncertain if last Monday’s VIX spike was a one off event or the precursor to something far greater.
And while the events from last week are still fresh in everyone’s mind, Deutsche Bank’s derivatives team has laid out some of the most notable moves in volatility during what the German bank dubbed an “Extraordinary Week in Equity Volatility.” Here is a summary.
- In February alone, we’ve now seen more 2% moves (all down) than in the past 7 quarters combined.
- Monday saw a disproportionate move in the weighted average VIX futures given the SPX return, due to rebalancing of inverse and levered VIX ETPs
- VIX vol-of-vol hit its highest level ever as the weighted average future almost doubled over the day
- SPX skew steepened considerably on Monday, the biggest move in over 15 years
- SPX implied vols had an outside move vs. most other underlyings including small cap vol, credit, and even weighted average single-stock implied volatility
- Although SPX implied vols are higher than small cap vol, longer-dated vols are lower.
- Implied correlations spiked higher before finally coming back, and cross asset correlations have started to roll, but were at recent highs across equities, dollar down, rates up, and commodities.
And here is the visual support of the above observations:
The number of 2% SPX moves in February alone are greater than in the past 7 quarters combined, while Monday’s move saw a disproportionate move in the weighted average VIX futures due to rebalancing of inverse and levered VIX ETPs
The volatility of VIX (vol-of-vol) hit its highest level ever as the weighted average future almost doubled over the day; at the same time SPX skew steepened considerably on Monday, the biggest one-day move in 17 years
SPX vols had an outside move vs. other underlyings like IWM and credit spreads…
… and weighted average single stock volatility of SPX components (3M ATM IV spread). For now SPX short-dated vols higher vs. RUT but longer-dated remains below.
The market sell-off has been quick but “orderly”; with most sectors moving down largely in-line with their betas to SPX.
Finally, and most notable, Cross asset correlations that reached near highs in late January have started to roll as equities underperform.
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