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The S&P 500 rose about 1.5% on Monday, November 10, as implied volatility levels fell sharply. The VIX 1-Day dropped from 16.9 to open around 9—a big decline—before closing at 11.2. The volatility reset now appears complete. This suggests the rally is likely to stall on Tuesday, following the typical pattern seen after strong Monday gains, when implied volatility is elevated on the preceding Friday.
Also, with the announcement that the government shutdown is likely ending, the VIX index fell sharply. As usual, when implied volatility declined, the stock market rallied—and once the VIX stabilized, the rally stalled. This has become a recurring pattern in recent months, underscoring how much of the market’s day-to-day movement is being driven by options positioning and flows rather than fundamental and technical factors.
Tomorrow is a bank holiday, so the bond market will be closed. That also means there will be no Treasury settlements. However, this changes on Wednesday, when about $14 billion in Treasuries are scheduled to settle. Additional settlements of roughly $23 billion on the 13th, $26.7 billion on the 17th, and $14 billion on the 18th will follow. There’s also potential for another $20 billion or so to settle on the 19th, if the typical pattern follows. Altogether, this amounts to roughly $100 billion in settlements between Wednesday of this week and Thursday of next week—a sizable amount that could strain market liquidity, much as occurred in the final week of October, when similar settlement volumes took place.
Despite there being no settlements today, the average repo rate at DTCC rose to 3.99% from 3.97% on Friday. This should push SOFR higher tomorrow. Volume levels for Treasury transactions also declined to $40.3 billion, which could have added some extra liquidity to the equity market, but again, I would expect much of this change to be as we head into Wednesday.
Overall, I doubt this rally amounts to much, but it’s hard to say in a market where one stock can drive half the day’s gains and add nearly $300 billion to its market cap, as Nvidia did today, for no apparent reason. Meanwhile, its 1-week implied volatility rose to 53.9% from 44.5%, and is probably on its way to 100%. Unfortunately, Nvidia has left one more volatility dispersion trade on the table that is yet to be completed.
-Mike
Glossary by ChatGPT
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DTCC (Depository Trust & Clearing Corporation) – A financial services company that provides clearing and settlement services for securities transactions.
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Implied Volatility – The market’s forecast of a likely movement in a security’s price, derived from options pricing.
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Repo Rate – The interest rate charged for short-term borrowing using securities as collateral in the repurchase agreement market.
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SOFR (Secured Overnight Financing Rate) – A benchmark interest rate for U.S. dollar-denominated loans and derivatives, reflecting overnight borrowing costs collateralized by Treasuries.
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Treasury Settlements – The process by which U.S. Treasury securities are exchanged for payment after auctions or trades, affecting liquidity conditions.
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VIX (Volatility Index) – A measure of the market’s expectation of near-term volatility in the S&P 500, often referred to as the “fear gauge.”
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.
Subscribe to receive this FREE daily commentary directly in your email
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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