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Volatility Monitor

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Volatility Monitor

"Volatility Brief – 11/21/16"

posted by CAPIS on 11/21/2016 at 2:44 pm

by CAPIS

11/21/2016 at 2:44 pm

As the S&P500 hits all time highs today, at least intra-day, VIX is trading with a 12 handle today following on the heels of dropping volatility levels from last week and the week prior. Traders and investors alike pushed VIX to as high as 23.01 on November 4 as the US presidential approached but any market fears quickly evaporated post election results despite the election night futures gyrations.

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Today we saw a big trade hit the the tape in the VIX. A trader sold close to 28,000 December 21 VIX 14/16 put spreads for $1.45 getting long deltas with an expectation the market sells off by expiration and the VIX trades higher. Meanwhile, the volatility of VIX as measured by VVIX continues to trade lower around the 81 handle near the yearly low of 76.17.

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The next macro event we have is the Italian referendum on December 4 and the Fed rate decision December 14. The Fed meeting will be watched closely and typically there is a flurry of activity VIX around rate decisions. Risk and volatility around the Italian referendum may manifest in the currency market:

The referendum matters as it could accelerate the path towards euro exit. If Mr Renzi loses, he has said he would resign, leading to political chaos. Investors might conclude the game is up. On December 5, Europe could wake up to an immediate threat of disintegration. (Source: Financial Times)

The referendum has been proposed by Italian Prime Minister Renzi to limit the powers of the Senate, which is the upper house of Parliament. Should the vote be defeated, the Renzi has promised to quit and there are concerns that his resignation could cause turmoil in the European Union. In an interesting take, a Bloomberg story makes the case for the US Dollar as a gauge of risk and volatility, especially as it concerns portfolios with international positions.

December US Dollar Index Futures (DXZ6) were trading above the 101 handle at the time of this writing. It is important to note that the US Dollar Index Futures is a basket of six currencies weighted to the US Dollar, of which the Euro is given over 50% weighting.

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This communication is for informational purposes only and is solely intended for use by institutional investors. Use of this communication by others, including retail investors, is prohibited. No statement herein is to be construed as a recommendation to purchase or sell a security, or to provide investment advice. Certain products, including options and futures, may involve substantial risk and are not suitable for all investors. While the information and opinions presented in this material have been obtained or derived from sources believed by Capital Institutional Services, Inc. (CAPIS) to be reliable, CAPIS makes no representations concerning its accuracy or completeness, and accepts no liability for loss arising from the use of this material.