The Weekly Takeaway:
- The S&P 500 lost 2.02% this week. It is now down 1.54% for the year;
- The Nasdaq-100 lost 1.27% this week. It is now down 2.40% for the year;
- Crude oil futures gained 35.64% for the week and closed at $91.27. That’s the highest level since September 2023;
- The U.S. economy shed 92,000 jobs in February. The market had expected an increase of 60,000 jobs;
- S&P 500 VolDex (ticker VOLI) rose by 40.16% this week and closed at 22.58. That is still well below the high from April’s tariff turmoil (46.01);
- S&P 500 TailDex (ticker TDEX) rose by 58.13% and closed at 30.03. That is the 61st percentile of its 52-week range;
- S&P 500 RiskDex rose by 73.30% and closed the week at 15.70. That is the very top of the 52-week range. RiskDex continues to signal an extreme level of pessimism;
- You can learn more about RiskDex at Learn More About RiskDex;
- Every S&P 500, 30-Day volatility metric rose at least 40% with the exception of CallDex which fell by 19.07%;
- VolDex on the Nasdaq-100 rose by 27.64% to close at 27.40;
- RiskDex on the Nasdaq-100 rose by 66.52% and closed at 11.06. That is another 52-week closing high and the highest level since March 2020;
- The yield on Treasury Notes rose by 17.1 basis points to close at 4.133% as fears for energy’s impact on inflation overwhelmed any “flight to quality” buying in Treasuries;
- Every volatility metric for Treasury Bonds rose by at least 10% with the exception of CallDex which fell 5.59%;
- Bitcoin futures finally staged a rally and gained 3.63% to close at 68,255. Bitcoin VolDex rose 10.10% to close at 56.04;
- The individual equities we cover were mostly lower this week although 5 names managed to rally (AMZN, MSFT, NVDA, PLTR, and AVGO);
- VolDex on the single names we cover was higher for every name except AVGO which experienced the typical volatility crush following Wednesday’s earnings release;
- The Nations Indexes Optimism Index® fell by 59.68% to close at just 19.25. Optimism fell as all three inputs, VolDex, RiskDex, and TailDex rose by at least 40% on the week. Our Optimism Index is always available in real-time on our home page at NationsIndexes.com;
- You can always learn more about all our indexes at Learn More About Our Indexes.
Equity Index Volatility:
The S&P 500 lost 2.02% for the week thanks largely to a decline of 1.33% on Friday. Obviously the war in the Middle East weighed on stocks and Friday’s decline was fueled by the disappointing jobs data.
Every volatility metric on the S&P 500 rose with the exception of CallDex which fell by 19.07% after falling 13.29% and 13.03% in the previous 2 weeks respectively. This week’s CallDex close of 7.13 is once again the bottom of the 52-week range and the lowest close since September 2021. CallDex on the S&P 500 and Nasdaq-100 are both at the bottom of their respective 52-week ranges.
S&P 500 RiskDex gained 73.30% after gaining 18.69%, 11.55%, and 29.08% in the previous 3 weeks respectively. This week’s close of 15.70 is an extreme level for RiskDex; in more than 20 years of daily closing values for S&P 500 RiskDex, it has closed above 15.70 only twice (8/11/2017 and 3/13/2020).
Historical metrics (Average, median, 10th percentile, 25th percentile, 75th percentile, and 90th percentile) for all out indexes are available to subscribers at NationsIndexes.com.
Why It Matters…Historical data for all our indexes is available to subscribers at the Everything! level and they allow option traders to understand the context of the current option pricing environment – the current environment, while not unique, is very unusual, particularly with regard to RiskDex. Volatility is mean-reverting and that is a phenomenon traders can take advantage of in both directions. But you have to understand what normal is, what the “mean” is, in order to do so.
Nasdaq-100 VolDex rose by 27.64% this week.
Nasdaq-100 VolDex is at the 40th percentile of its 52-week range.
Nasdaq-100 RiskDex rallied 66.52% to close at 11.06. That is the highest level ever recorded with the exception of extreme levels reached in March 2020.
Last week we noted that,
“While RiskDex signals that out-of-the-money put options are extremely expensive in relation to out-of-the-money call options, VolDex remains reasonably priced in the Nasdaq-100 meaning traders who wanted to hedge using at-the-money puts could still do so on Friday.”
Traders who took advantage and bought Nasdaq-100 VolDex on Monday as stocks rallied from their low to reach unchanged and as implied volatility fell back from higher opening levels did very well.
You can learn more about VolDex at Learn More About VolDex.
Why It Matters…Traders have to have the objective data provided by our indexes to trade in a way that doesn’t rely on hunches or guesses.
Nations Investor Optimism Index®:
The Investor Optimism Index® fell by 59.68% and closed at just 19.25.
The index takes into account the current levels of S&P 500 VolDex, TailDex, and RiskDex and compares them to their rolling 2-year ranges. It is plotted on a 0 to 100 scale.
Our Optimism Index is now available in real-time on our home page at Nations Optimism Index.
Option Window:
Option Window fills in the blanks between TailDex, PutDex, VolDex, and CallDex and reveals how trade flows were driving option prices.
This week you can see panicked buying of options at nearly all strike prices with the exception of deep out-of-the-money calls. Traders were selling those call options to get short exposure to the S&P 500.
Term Structure:
The Nations TermDex® measure of VolDex term structure illustrates S&P 500 VolDex for various tenors. It provides insight into both near-term and longer-term expectations for volatility in the S&P 500.
Friday’s closing term structure, in red, was extremely inverted with shorter-dated VolDex measures higher than longer-dated VolDex measures. Normally the term structure curve is upward sloping from left to right but pessimism is driving shorter-dated volatility higher.
1DTE Options:
S&P 500 1-Day VolDex more than doubled this week, gaining 104.58% to close at 26.04.
Very short-dated volatility measures which use a variance swap methodology, as 1-day VIX does, inject significant error into the resulting measure because of the way out-of-the-money options trade in the hours before expiration. The VolDex at-the-money methodology is particularly suited for these very short-dated tenors.
Other Asset Volatility:
Treasury Bonds and Notes:
Treasury Bond volatility metrics echoed those of the S&P 500 this week with all metrics other than CallDex up significantly.
The price action in Treasury Bond futures was very surprising this week as they declined nearly 2 ½ points or 2.03%. Treasury Bond prices usually spike during times of geopolitical strife and periods of equity market weakness as traders and investors seek a safe haven. This week’s price action is worrisome because prices declined every day.
Treasury Bond VolDex closed at the 20th percentile of its 52-week range so these options are still reasonably priced for traders seeking to establish directional positions.
Bitcoin:
Bitcoin rose by 3.63% but could not stay above 70,000 and closed the week at 68,255. Bitcoin volatility was generally higher.
Bitcoin TailDex fell by 0.95% as traders sold deep out-of-the-money puts which had rallied in price over the previous 2 weeks.
You can learn more about TailDex at Learn More About TailDex.
Equities:
We have expanded the list of single names we cover to include not only the most dynamic stocks in the S&P 500 and the stocks with the highest option volume, but also the largest names in the S&P 500.
PLTR gained 14.56% this week thanks to fresh analyst upgrades and the thinking that geopolitical tensions will favor its government and defense business.
Several names lost ground along with the broad market. LLY was the big loser, falling 5.86%, on fears about pricing pressure in the GLP-1 space.
VolDex was higher for every single name we cover with the exception of AVGO which experienced the typical volatility crush following its earnings release on Wednesday.
RiskDex once again rose for most names. Several names saw RiskDex climb by more than 30% as investors got decidedly defensive.
The jump in NVDA RiskDex is extreme and it has now matched the level seen during April’s selloff.
AAPL RiskDex gained 13.45% after gaining 15.37% in the previous week and closed at 2.64.
RiskDex is climbing for many of these names because, in part, CallDex is falling dramatically. RiskDex is the ratio of PutDex to CallDex so weakness in CallDex strengthens RiskDex.
CallDex on several names is at extremely low levels. Owning out-of-the-money call options can be a low cost way to create a defined-risk trade in these names. These calls require the stock to rally by the expiration date but are significantly less costly than buying shares outright.
Real-time CallDex values and charts are available at NationsIndexes.com
You can learn more about RiskDex here.
All our index values are available in real-time to subscribers.
We’ll continue to comment during the week via our X account, @Nations_Indexes.
Scott's Weekly Commentary:
It’s not surprising that stocks sold off in the face of the war in the Middle East and, more specifically, that crude oil prices gained more than 35%. What is surprising, and troubling to me, is the decline in Treasury Bond prices (-2.03%). They are usually the go to “flight to quality” asset and that didn’t occur. I guess you could look at that decline, and the decline in Treasury Bond CallDex (down 5.59%), and say there is relatively little fear among traders and investors. You might say they don’t see the need to “flee to quality” and that bond prices are down because of last week’s inflation data and this week’s spike in crude oil prices which will feed inflation over the next several months.
The fact that gold lost 1.95% on the week and silver lost 10.40% would buttress that point of view.
But RiskDex for both the S&P 500 and Nasdaq-100 are at extreme levels so whoever is trading those options sees plenty of reasons to be fearful.
Some of this optimism, or at least the lack of pessimism, could be a good thing if it means smart people believe the war will be over soon. Or it could be bad if it means we’re complacent and the worst is yet to come. I’ll be watching crude oil prices. Every recent spike has been transient but if crude remains above $85 through summer then that inflation is going to feed through to everything else.
What to do? First, do no harm. Don’t make any big changes or trades. Work around the edges and take advantage of opportunities. As Joe said above, at some point the elevated RiskDex levels will make put-spread risk reversals attractive.
If you are bullish now and don’t want to sell put spreads then out-of-the-money calls are very cheap. We've added CallDex charts for three of these names below.
Everyone at Nations Indexes hopes you have a profitable week and that all American service members have a safe one.
Scott
