Your Week’s Volatility Market Commentary — Make Information Your Edge

The Weekly Takeaway:

• The S&P 500 gained 1.57% this week. It made a new all-time high of 6978.36 on Friday;
• The Nasdaq-100 gained 2.22% this week. It is still below the all-time high made in October;
• S&P 500 VolDex (ticker VOLI) lost 4.52% this week and closed at 11.82. That is just the 3rd percentile of its 52-week range;
• S&P 500 TailDex (ticker TDEX) closed at 12.07, a gain of 16.73% for the week. Despite this gain it is still at just the 8th percentile of its 52-week range;
• While S&P 500 VolDex fell on the week, out-of-the-money option metrics including CallDex (1 standard deviation out-of-the-money calls), PutDex (1 standard deviation out-of-the-money puts), and TailDex (3 standard deviation out-of-the-money puts) all gained ground for the week. This is an important nut nuanced expression of concern regarding the S&P 500 over the next 30 days;
• Important historical metrics for all our indexes including average, median, and critical percentile closes are available to subscribers at NationsIndexes.com;
• VolDex on the Nasdaq-100 fell by 4.43% this week;
• The volatility regime in the Nasdaq-100 was different than for the S&P 500. Nasdaq-100 CallDex and PutDex both fell which Nasdaq-100 TailDex rose by just 0.83%. You can learn more about TailDex at Learn More About TailDex;
• The yield on Treasury Notes fell by 1.6 basis points on the week to close at 4.171%. Treasury Bond VolDex fell back below 10.00 again, closing at 9.75, a decline of 4.06%. CallDex and PutDex both fell by more than 11%. While Treasury Bond option prices are still very low, this week’s option price action was largely due to the passing of the jobs data catalyst which is the most important monthly catalyst for fixed income markets;
• Bitcoin gained 0.28% this week and Bitcoin VolDex fell 4.26% to close at 39.76. That is the first daily close below 40.00 since October 2;
• Gold futures gained 4.02% this week and silver futures gained 10.41% in a continuation of remarkable realized volatility. Silver VolDex closed at 64.95, a gain of 0.79% for the week;
• VolDex for individual names was higher for every name with the exception of NVDA (-1.72%), TSLA (-3.78%), and BRKB (-11.55%). VolDex gained more than 20% on the week for AMZN, the second consecutive week it has done so;
• The Nations Indexes Optimism Index® fell by 0.29% to close at 86.05 which still expresses substantial optimism. 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 gained 1.57% for the week and made a new all-time high on Friday.

S&P 500 volatility was mixed for the week with VolDex falling and CallDex gaining 5.03% and TailDex gaining 16.73%.

The implication is that traders do not expect significant volatility over the next 30 days (hence VolDex falling) but realize there is the possiblity of news that generates surprising and outsize moves (hence CallDex and TailDex gaining).

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 unusual. 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.

The Nasdaq-100 gained ground 4 of the 5 days this week including a gain of 1.02% on Friday.

Nasdaq-100 volatility metrics were generally lower as fears of new-year profit taking in the frothiest tech names faded.

Nasdaq-100 VolDex, PutDex, and TailDex are all below the 10th percentile of their respective 52-week ranges signaling very little fear for the next 30 days.

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

Why It Matters…Traders need 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 0.29% to close at 86.05.

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.

VolDex Term Structure:

S&P 500 VolDex term structure on Friday’s close reinforced the idea that the market is unworried about direction in the short term. S&P 500 7-Day VolDex closed below 10.00.

Option Window:

Option Window fills in the blanks between TailDex, PutDex, VolDex, and CallDex and reveals how trade flows were pushing option prices. This week you can see selling of at-the-money strikes and buying of deep out-of-the-money puts. This reinforces that investors believe there will be little realized volatility over the next 30 days but that they believe the opportunity exists for a catalyst, likely geopolitical, to lead to a steep selloff.

1DTE Options:

S&P 500 1-Day VolDex fell 19.51% thanks largely to the passing of the jobs data catalyst.

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:

Volatility metrics for Treasury bonds were generally lower this week as the jobs data passed unremarkably.

Treasury Bond implied volatility remains VERY low as it has been for several weeks. Treasury Bond PutDex closed at a new 52-week low of just 24.55.

Why It Matters…For some weeks we have been noting the opportunity to buy at-the-money Treasury bond options at historically low prices. This trade has not worked. Regardless, short volatility structures in treasury bonds are still to be avoided.

Bitcoin:

Bitcoin rallied 0.28% thanks to a rally of 4.82% on Monday and bitcoin volatility metrics were lower with RiskDex rising only because CallDex fell by more than PutDex.

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

Bitcoin VolDex fell below 40.00.

Precious Metals:

Silver futures fell 9.30% in the previous week but rebounded this week, gaining 10.41%.

Silver VolDex at 64.95 says the market expects daily moves of 4.06% from silver over the next 30 calendar days.

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.

Equities were surprisingly mixed this week in light of the gains in the broad indexes with 9 names gaining and 5 names losing ground. AMZN was the big winner with a weekly gain of 9.22% while AMD was the big loser with a loss of 9.08%.

VolDex was less mixed with gains predominating.

It is interesting that AMD was the big loser on the week because last week it was 1 of only 2 names displaying call skew (i.e., RiskDex below 1.00). While AMD VolDex and CallDex gained ground, PutDex was nearly unchanged and AMD RiskDex fell another 6.64% to just 0.85.

The price action in AMD has been interesting over the past 52-weeks with a high of 267.08 and a low of 76.48 vs. Friday’s close of 203.17. There is an interesting gap in AMD from 170.00 to 193.00 and option markets are saying they think AMD will not fill that gap and will instead rebound.

Holders who disagree with the consensus should watch AMD RiskDex. The 52-week low is 0.57 so we would consider anything below 0.70 as signaling a good hedging opportunity.

Scott's Weekly Commentary: