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Subscribe →The S&P 500 index finished higher, and just about every measure within the volatility complex finished lower, making it a bit of an odd day, at least from a mechanical standpoint. The VIX closed below 17 today, which I find a bit surprising, especially given that oil implied volatility is still around 75.
The interesting thing, I suppose — and I’m kind of just thinking out loud — is that the oil volatility index (OVX) is currently trading at more than four times the VIX, and the only other time that happened was during COVID.
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It is the same with OVX versus the MOVE index, so either the bond and equity markets know something about the situation with Iran and the oil market that professional oil traders and hedgers do not, or equity and bond market volatility is wrong.
So, who knows — I don’t know either; it just seems a bit odd to me.
The dispersion index fell today to 37 and should continue to decline from here, now that Apple has also reported results. Surprisingly, implied correlations were down too, which is unusual. It’s not often that the spread between dispersion and correlations falls and the S&P 500 rises — that’s for certain. I mean, it happens, but not often. At least as of today, we are in a period where this spread should be in contraction.
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Finally, USD/JPY rose as high as 160.75 today, prompting intervention, and then moved back to 156.50. We will see how the market responds over the coming days, but historically, when JPY strengthens across FX, it tends to be negative for risk assets such as the MXN/JPY
Glossary by ChatGPT
- Dispersion Index: A measure of how much individual stock returns within an index differ from the overall index return.
- Implied Correlation: The market’s expectation of how closely individual stocks within an index will move together.
- MOVE Index: A measure of implied volatility in the U.S. Treasury market, often referred to as the bond market’s “VIX.”
- MXN/JPY: A currency pair reflecting the exchange rate between the Mexican peso and Japanese yen, often used as a proxy for carry trade risk appetite.
- OVX (Oil Volatility Index): A measure of implied volatility derived from options on crude oil, reflecting expected price swings in oil markets.
- S&P 500: A benchmark U.S. equity index tracking 500 large-cap publicly traded companies.
- VIX: The CBOE Volatility Index, measuring expected volatility in the S&P 500 over the next 30 days.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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