US Equity futures rallied overnight and the cash market opened broadly higher before selling off in late day trading. E-mini Nasdaq-100 futures prices went from up 2% to down 2% during the trading day. What we found particularly interesting was a continuation of a trend that we’ve been talking about over the past several days. We noted that, at about 10:20 AM Chicago time, E-mini Nasdaq-100 futures prices were up by about 170 points (close to 2%) while 30-day implied volatility in the options had risen from about 28% to 30%. While the increase in implied volatility, even with the rise in prices, could be attributed to several factors including the buying of premium (protection) ahead of an uncertain earnings season, this continued positive correlation between prices and volatility in the Nasdaq seemed notable. Ultimately, E-mini Nasdaq-100 futures prices were down over 2% in late day trading and 30-Day implied had risen to over 31%.
Recapping other CME Group markets, most major products had characteristics of a “risk-off” type of trade. Gold futures prices were slightly higher, remaining above 1,800, prices at the long end of the US Treasury futures yield curve rose, indicating lower yields, WTI Crude Oil futures prices were lower as were CME Group grains markets and the US Dollar was generally higher against other major currencies.
We used QuikStrike to graph today’s price and volatility action, along with the Risk Reversal (RR), in the September E-mini Nasdaq-100 market. As you can see, early in the day, both price and volatility were increasing while the RR fell, indicating Puts were bid versus Calls. Then, as the price broke, volatility was bid even higher and the risk reversal which had risen, fell again to end lower. With all the uncertainty over the economy and re-opening versus re-closing, the increase in vol perhaps shouldn’t be surprising, but we’ll continue to watch this relationship with prices.