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A look ahead for markets. Stubborn options volatility.
2 min read

A look ahead for markets. Stubborn options volatility.

A look ahead for markets. Stubborn options volatility.

  • The major indices have recovered slightly from their September sell-off.
  • Despite the rally, volatility hasn't budged much in the past two weeks (VIX currently ~27)
  • The future curve of implied volatility is even higher.
  • November is nearly 33 (for the expiration that captures the election).
  • Broader market implied volatility looks more like a single stock name set to announce a new product... and then report earnings.

Expected Move Summary

Let's start by checking in on the expected move for the index ETFs. Here's a side by side comparison of expected moves for SPY, QQQ, DIA and IWM via Options AI's expected move calculator:

The SPY and DIA are huddled together with about a 4.5% expected move for the next month and a 9% expected move for the next three months. The QQQ and IWM huddle together at about 6% for the next 3 months and 11.5% for the next three months.

Here's how that translates directly for SPY and QQQ over the next month, via Options AI:

A Lot Going On.

Considering all that's going on (stimulus negotiations, upcoming earnings season, the election, and all against the backdrop of Covid) implied volatility being stubborn and not reacting to day to day realized moves makes sense. With all the news ahead, the VIX falling back into the low 20's just because the market has moved higher over the past two weeks would be odd.

Broader market volatility is treating the next 2 months almost like a stock would be pricing in a product release... followed by an earnings.

Implied volatility is a complicated beast. In single name stocks it tends to be forward looking, to things like earnings, drug trials, product announcements etc. When it does react to current stock moves it tends to be across the board, via broader market moves.

Implied volatility in the broader market typically tends to be right here right now. Stocks go higher, volatility falls. Stocks go lower, vol goes higher. It isn't often forward looking, especially out a few months. But with all that's going on that's exactly what it's doing now, and the options market is saying it will continue until at least November.

Actionable Insights from the Options Market

Earnings event expected moves
Unusual activity alerts
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