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The S&P 500 gapped higher today following Friday’s close, and as last week showed, these types of moves tend to be unstable. It’s not unusual to see the index give back the day’s gains fairly quickly, as happened twice last week. Additionally, the index reached the 100% extension of the rally from low to high on Thursday and Friday, making this as good a place as any for a potential pullback.
Once the IV flattened out, so did the S&P 500.
VIX options expiration is scheduled for Wednesday morning, and currently, the put wall appears to be around 18. That likely suggests the VIX isn’t expected to decline much further from Monday’s close.
Additionally, realized volatility rose today across the board, and as long as the SPX continues to move by more than 80bps, then 21-day realized vol will rise and keep implied volatility elevated.
The S&P 500 gapped higher today following Friday’s weak close, and as last week showed, these types of moves tend to be unstable. It’s not unusual for the index to give back the day’s gains fairly quickly, as it did twice last week, when a gap was followed by a weak close. Additionally, the index reached the 100% extension of the rally from low to high on Thursday and Friday, making this as good a place as any for a potential pullback. However, the index did close above the 20-day moving average for the first time in a week.
The spreads between the dispersion index and the 3-month implied correlation index have returned to their pre–October 10 sell-off levels. Whatever progress had been made has now been undone, leaving the market back at some overly stretched metrics. This will need to unwind eventually, but it seems market participants are determined to keep pushing this trade until the Big Four report earnings next week.
Tomorrow is also a Treasury settlement date, with $29.0 billion set to settle. Recently, settlement dates have tended to coincide with tighter overnight funding conditions and increased usage of the Standing Repo Facility. Tomorrow will therefore be another test. While it hasn’t always been the case, there have been a few occasions when the S&P 500 has fallen on settlement dates.
-Mike
Glossary by ChatGPT
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100% Extension – A technical analysis level projecting a move equal in size to a prior price swing, often signaling potential resistance.
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Dispersion Index – A measure of how much individual stock returns within an index diverge from the overall index return, reflecting cross-stock volatility.
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Implied Correlation Index – A gauge of the average correlation among stock options within an index, indicating how synchronized stock movements are expected to be.
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Implied Volatility (IV) – The market’s forecast of future volatility derived from option prices.
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Put Wall – A concentration of put option open interest at a specific strike price that can act as a support or floor for volatility or price levels.
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Settlement Date – The day when securities transactions are finalized and payments exchanged.
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Standing Repo Facility – A Federal Reserve tool that provides overnight liquidity to eligible institutions in exchange for Treasury collateral.
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VIX – The CBOE Volatility Index, measuring expected S&P 500 volatility over the next 30 days.
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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