Once again, the US Equity indexes struggled to find direction and ultimately closed mixed with the Dow Jones Industrials down slightly while the S&P 500 and Nasdaq were both higher on the day. Implied volatility in the options markets declined slightly. It was a relatively quiet day all around in CME Group’s financial and commodity markets as only a handful of products saw daily net price changes of over 1%. A couple of exceptions were WTI Crude Oil and Natural Gas futures prices which both declined and Bitcoin futures prices that were up another 6.5%.
Using QuikStrike data we compiled four graphs depicting the at the money volatility levels in the June, September and December E-mini S&P 500 contracts from 2015 to 2020 and the March implied volatility in the years from 2015 until present. The horizontal access on each graph depicts the Days to Expiration and the vertical axis shows the implied volatility. We stopped the graph at 36 days until expiration as that what is left in the current March 2021 option. Not surprisingly, given the extraordinary volatility in 2020 caused by the economic shutdowns, the March, June and September of 2020 volatility levels were higher than almost any year since 2015. The exception, and it’s noted in the graph, was that in August of 2019 the 2-Year Treasury yield inverted with the 10-Year yield (the 2 year temporarily yielded higher than the 10-year) which caused a temporary spike in volatility in the equity markets as this phenomenon can sometimes precede a recession.
However, with the decline we’ve seen in implied volatility over the last couple of weeks in the equity index options markets, as you can see in the lower right graph, it is now trading at closer to the average level over the last six years, though still elevated and above that average.