S&P Soars as Crude Falls. What Options Say is Next.

The Weekly Takeaway:

• The S&P 500 continued its rally and gained 4.54% this week and was in the green every day. The index is now up 4.10% for the year;
• The Nasdaq-100 gained 6.20% this week and is on a 12-day winning streak. That is the longest winning streak since 2009. The index is now up 5.63% for the year;
• Crude oil futures fell 13.35% after falling 14.05% in the previous week. They closed at $83.07 but that is still up 24.83% since the start of the war with Iran;
• S&P 500 VolDex (ticker VOLI) fell 7.67% to close at 14.53;
• S&P 500 CallDex rose 41.09% after gaining 37.72% in the previous week as traders continued to reach to buy upside exposure. You can learn more about CallDex at Learn More About CallDex;
• Every 30-Day volatility metric for the S&P 500 was lower on the week with the exception of 30-Day and 7-Day CallDex. This is the second week that has been the case;
• S&P 500 VolDex is at the 19th percentile of its 52-week range while S&P 500 CallDex is at the 53rd percentile of its 52-week range;
• VolDex on the Nasdaq-100 fell by 3.89% to close at 19.30;
• Nasdaq-100 30-Day volatility metrics again echoed those for the S&P 500 in that they all fell with the exceptions of both tenors in CallDex;
• Nasdaq-100 TailDex fell 23.28% signaling that traders are now unconcerned about any downside in tech. You can learn more about TailDex at Learn More About TailDex;
• The yield on Treasury Notes fell 7 basis points this week and closed at 4.246%;
• Every volatility metric for Treasury Bonds fell this week with the exception of 30-Day CallDex (+21.96%) as the war in Iran seemed to be winding down and as crude oil fell leaving traders hopeful that inflation and interest rates will ease further;
• The individual equities we cover were generally higher this week with only BRKB (-1.11%) and LLY (-1.32%) losing ground;
• VolDex on the individual names was generally lower with only NVDA (+6.65%), LLY (+2.49%), and WMT (+5.96%) rising;
• The Nations Indexes Optimism Index® rose by 9.35% to close at 86.70. 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 rose 4.54%, gaining 309 points, to reach 7,126. The index hit a new all-time high of 7,147.52 on Friday. This strong rally continued the rebound from March's decline, with the index now up 6.9% over two weeks and positive year-to-date as the administration announced that the Strait of Hormuz was open to navigation for all but Iranian vessels. But the Iranian military has just announced that the Strait is once again closed.

Expect this latest news to boost crude oil prices and weigh on equities when trading resumes unless there is a change in circumstances.

S&P 500 CallDex remains particularly volatile with a gain of 41.09% this week as traders again reached to buy out-of-the-money call options for bullish exposure; it is up more than 60% this month. CallDex measures the normalized price of the 30-Day, 1 standard deviation out-of-the-money call option; that corresponds to a 16 delta call.

RiskDex fell by 40.97% this week after falling 38.83% in the previous week and is now well below its long-term average of 3.78. The median close is 3.43 so the current level of 2.77 signals significant complacency on the part of investors.

Historical metrics (Average, median, 10th percentile, 25th percentile, 75th percentile, and 90th percentile) for all our 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. You have to understand what normal is in order to do so.

Nasdaq-100 VolDex fell by 3.89% and Nasdaq-100 CallDex rose by 40.65%.

Nasdaq-100 VolDex is at the 23rd percentile of its 52-week range.

You can learn more about VolDex at Learn More About VolDex.

Nasdaq-100 RiskDex fell by 39.14% and closed at just 2.22, mimicking the move in the S&P. It is now at just the 4th percentile of its 52-week range. Any move below 2.00 should be considered a hedging opportunity for a collar spread.

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® rose by 9.35% to close at 86.70.

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®:

S&P 500 Option Window fills in the blanks between TailDex, PutDex, VolDex, and CallDex and reveals how trade flows were driving option prices. Since Option Window calculates normalized option prices at fixed points of moneyness any changes are driven by option flows rather than movement in the underlying S&P 500.

Option prices were lower across most of the skew with 30-day option prices higher only above 0.4 standard deviations above at-the-money (approximately 7265).

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.

Term structure has normalized to upward sloping and showed very little range this week. Friday’s close in is red, Thursday’s is in black, and the earlier days of the week appear in fainter shades of gray.

1DTE Options:

S&P 500 1-Day VolDex fell by 20.44% to close at 9.87. This is the first close below 10.00 since February 20.

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:

Bond futures have dropped in price since the start of the war but have gained back 2.51% since their low on March 27.

Treasury Bond VolDex fell again this week and closed at the 11th percentile of its 52-week range. Any close below 10.00 should be considered an opportunity to express directional trades via at-the-money bond options.

Precious Metals:

Precious metals gained on the week with gold climbing 1.85% and silver gaining 6.19%. This week’s lower interest rates make precious metals more attractive. Every volatility metric for gold fell with the exception of CallDex which rallied 5.25%.

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.

AMD, MSFT, TSLA, and PLTR all gained more than 10% this week. This is the second week in a row that AMD gained more than 10% and AVGO nearly joined that exclusive club.

GOOGL rallied by 6.99% and joined NVDA as the only stocks with market caps above $4 trillion.

VolDex was generally lower as fear ebbed and stocks rebounded. NVDA VolDex gained 6.65% because it is starting to capture the company’s next earnings report.

RiskDex fell by more than 20% for several names with AAPL seeing the largest decline. RiskDex in TSLA has been a fantastic signal over the past 30 days and it fell by 22.75% this week. On March 25 it closed at 1.83 having gained 27% for the month. Shares closed at 385.95 on that day but fell by 10.4% over the next 11 trading days. But even then it was a great signal; from March 25 to April 9 RiskDex fell by 34% and over the 6 subsequent trading days since April 9 TSLA shares have gained 15.91%.

You can learn more about RiskDex at Learn More About RiskDex.

Scott's Weekly Commentary: