Stocks Plunge as Implied Volatility and the VIX Spikes

The VIX spiked on Friday, which is what we were talking about last week, when the VIX was relatively low, and the better chance was that it would rise. The market pulled back about 1% on two separate days, finishing the week about 2% lower on the S&P 500, while the Nasdaq 100 was down almost 5.5%. The VIX rose almost 5 points.

The VIX 1-day closed at 23.25, and because it resets daily, it tends to drop the next day. I wouldn’t be surprised to see it fall sharply on Monday and the market rally nicely. Whether that carries through is the more interesting question. One-month implied correlation rose, but it is still only around 10, so I don’t think it rises much going into earnings season. I’d be more surprised if it didn’t rise after earnings season.

The S&P 500 chart looks like a rising wedge, but I think support is pretty firm around 7,550, and maybe all the way down to 7,300. Net gamma exposure is also supportive, with the put wall at 7,650 and more put gamma at 7,600, 7,550, and 7,500. That said, I think 7,800 is probably the upper end of where the S&P 500 goes for now.

In rates, the 10-year fell sharply last week, which looks like a fairly normal 38.2% retracement of the big move higher. Some point to the AI trade unraveling as the reason, but the 60-day correlation between stocks and bond yields doesn’t support that. It was deeply negative into May and June, briefly strengthened in July, then quickly reversed. I think rising yields have more to do with the market pricing in higher real rates, and the 5-year, 5-year forward real yield and the 30-year yield both came down this week.

More importantly for the AI trade, the Korean won continued to strengthen this week. South Korean cumulative holdings of US stocks rose from about $185 billion in December 2024 to around $800 billion by mid-June 2026, while the won was depreciating. I think much of the summer move in semiconductors was driven by a weaker won and options speculation, and that is now unwinding.

-Mike

Michael Kramer publishes independent macro and options research read across 10+ platforms and by institutional desks.

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Glossary by Claude

VIX: The Cboe Volatility Index, which measures the 30-day implied volatility of S&P 500 options.
VIX 1-day: A Cboe index measuring expected S&P 500 volatility over the next trading day.
VIXEQ: A Cboe index measuring the implied volatility of the individual stocks in the S&P 500.
Implied correlation: The degree to which options prices imply stocks will move together rather than independently.
Put wall: The strike with the largest concentration of put gamma, which can act as a support area.
Gamma: The rate at which an option’s delta changes as the underlying price moves.
CTA: Commodity trading advisors, systematic trend-following funds whose flows follow price momentum.
Rising wedge: A chart pattern in which price rises within converging trend lines.

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