At-a-Glance
Key Takeaways with Craig
All four major US Indexes traded higher today, but the E-mini Dow and Russell 2000 futures far outpaced the S&P 500 and Nasdaq-100. Specifically, E-mini Russell 2000 futures were up by about 3.5% and E-mini Dow futures were about 1.8% higher, while the S&P 500 was up by just about .5% and the Nasdaq-100 was fractionally higher. In fact, since the beginning of July, E-mini Russell 2000 prices are up by over 11%, while Nasdaq-100 futures prices are up by just about 2.5%.
This action hasn’t been lost on the options market either, as you can see in the QuikStrike images below. The three graphs on the left side of the image depict one year of futures price (orange line) and implied volatility (blue line) data in the E-mini Russell 2000, Nasdaq-100 and S&P 500 (from top to bottom). As you can clearly see, implied volatility has spiked from 16.9% to 23% in E-mini Russell 2000 options just since July 9th, while the price has increased by about 11%. Meanwhile, both price and implied volatility action in the E-mini Nasdaq-100 and S&P 500 has been much more muted during that same time.
Moreover, the middle column of graphs show the volatility skew in all three indexes over the last 5 years, using the 25-Delta Risk Reversal as a proxy. Remember, this is simply the implied volatility of the 25-Delta Calls minus that of the 25-Delta Puts. As you can see, this value has not been positive at any time during the last 5 years in the Nasdaq-100 or the S&P 500, but has turned positive in the E-mini Russell 2000 options recently. In other words, in CME’s E-mini Russell 2000 options, the out of the money Calls are trading at a slightly higher volatility level than the Puts. The graphs in the right column illustrate the same thing, but focus in on just one month of data.
We often say “index choice matters” and the recent price action in the four major US indexes certainly underscore that point.
As always, we hope all our In FOUCS readers have a great evening and we’ll see you tomorrow.
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