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We’ve now had three consecutive Mondays where the VIX 1-Day fell from a high Friday value, leading to an S&P 500 rally of about 1%. The prior two Mondays not only saw rallies but also gave those gains back in the days that followed. However, today the VIX 1-Day closed below 9, suggesting that tomorrow volatility won’t be able to lift stock prices.
Right now, the stock market is in the final days of the dispersion trade ahead of results on Wednesday and Thursday. The Dispersion Index actually rose by nearly 5% today, reaching the same level it was at before the October 10 sell-off.
The Dispersion Index minus the 3-month Implied Correlation Index also rose back to its highs. That spread has now returned to levels last seen in July 2024 and January 2025, with the previous peak occurring in July 2023. I don’t know what the future holds, but each of those prior periods was followed by a sizable pullback.
Meanwhile, we saw the VIX Index fall today while the VIX Constituent Volatility Index rose. This really serves as the best evidence of the mechanical forces currently at work in the stock market.
At 41.50, we’d normally expect to see much more volatility in the market than what we’re seeing right now.
At 41.50, we’d normally expect to see much more volatility in the market than what we’re seeing right now.
Speaking of volatility, gold volatility continues to decline—and so does gold’s price. This really just reinforces how speculative the move in gold was in many ways.
What’s interesting is that gold volatility and the average volatility of S&P 500 stocks seem to move in lockstep.
It’s quite possible that, in the end, gold and stocks are the same trade, and what we’re seeing in gold may soon come to a stock market near us. Who knows, maybe even this week.
Mike
Glossary by ChatGPT
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Dispersion Index – A measure of how much individual stock returns differ from the overall index return, often used to assess opportunities for dispersion trading.
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Dispersion Trade – A strategy that involves buying or selling options on an index while taking opposite positions on the options of its component stocks, profiting from differences in volatility.
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Implied Correlation Index – A volatility-based measure showing how correlated index components are expected to move together in the future.
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VIX (Volatility Index) – A real-time measure of market expectations for near-term volatility conveyed by S&P 500 index options.
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VIX 1-Day – A short-term volatility measure based on S&P 500 options that captures expected market movement over the next trading day.
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VIX Constituent Volatility Index – A gauge of the average implied volatility of individual S&P 500 components, offering insight into stock-level risk dynamics.
Disclosure
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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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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