Key Takeaways with Craig
US Equity prices fell again today with all four major indexes down by between 1.2% and over 2%. The Nasdaq let the losses today, down by about 2.2% while implied volatility in the E-mini Nasdaq-100 options continued to trade higher. In fact, just since Friday’s close, the 30-day, at the money implied volatility in has risen from 20 to 27%. However, even with today’s -2% price move, the out of the money Calls actually traded slightly higher relative to the Puts than yesterday.
Unlike yesterday, today’s decline in stock prices was accompanied by a decline in Treasury yields with the Micro 10-Year Yield down by about 7 basis points and the Micro 2-Year down by about 3.5, leading to a further widening in the 2s versus 10s inversion. While the Treasury yields have fluctuated over the last several days, the CVOL skew in the 10-Year yield has had a more definitive trend toward the Puts. As you can see in the purple line in the graph below, the CVOL skew has gone from a positive approximately 4 to about -7.5.
Energy prices continued to fall with WTI Crude Oil futures down another 3.25% and Natural Gas futures declining another 3.7%. According to CME CVOL indexes, volatility in the options markets in both WTI and Nat Gas continued to fall as the price declines.
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