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Volatility Remains Elevated Across Markets
Investors think the Jackson Hole speeches will cause some fireworks.
Michael Sedacca    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

I was going back and forth with a friend a few minutes ago trying to figure out why equity implied volatility - the VIX structure in particular - remains bid in the face of higher equities. We came to the following conclusion:

1. Odds of fireworks from the Jackson Hole speeches over the next 36 hours that include the heads of the Fed, ECB, and Bank of England.
2. The market is still rattled from the large spike in vol at the end of last month and is not in a hurry to sell it as quickly again. As the saying goes, you can sell vol 364 days a year and go broke on day 365.
3. Vol was already crushed earlier this week due to war risk in the Ukraine subsiding. The September contract (August settled yesterday) is down 0.3-0.35 since last Friday.

My thinking is that it is a mix of 1 and 2.

Implied volatility in Treasury futures options similarly remains very well bid. The straddle expiring Friday for the September 10yr future is pricing in a 8.4bps move for the 7yr (remember the cheapest-to-deliver for the 10yr future is a 7yr), which would be somewhat large fireworks. That would equate to a roughly 6.2bps move for the 10yr, relatively speaking. The 5yr future is pricing in a roughly 8.4bps move. Ultra futures and TLT options are factoring in a 2.6bps move, which is frankly on the low side. However, this is probably correct because the topic of discussion is more related to the front end.

So the market is pricing in some significant volatility from Jackson Hole.

Twitter: @MichaelSedacca

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
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The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

More From Michael Sedacca
Volatility Remains Elevated Across Markets
Investors think the Jackson Hole speeches will cause some fireworks.
Michael Sedacca    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

I was going back and forth with a friend a few minutes ago trying to figure out why equity implied volatility - the VIX structure in particular - remains bid in the face of higher equities. We came to the following conclusion:

1. Odds of fireworks from the Jackson Hole speeches over the next 36 hours that include the heads of the Fed, ECB, and Bank of England.
2. The market is still rattled from the large spike in vol at the end of last month and is not in a hurry to sell it as quickly again. As the saying goes, you can sell vol 364 days a year and go broke on day 365.
3. Vol was already crushed earlier this week due to war risk in the Ukraine subsiding. The September contract (August settled yesterday) is down 0.3-0.35 since last Friday.

My thinking is that it is a mix of 1 and 2.

Implied volatility in Treasury futures options similarly remains very well bid. The straddle expiring Friday for the September 10yr future is pricing in a 8.4bps move for the 7yr (remember the cheapest-to-deliver for the 10yr future is a 7yr), which would be somewhat large fireworks. That would equate to a roughly 6.2bps move for the 10yr, relatively speaking. The 5yr future is pricing in a roughly 8.4bps move. Ultra futures and TLT options are factoring in a 2.6bps move, which is frankly on the low side. However, this is probably correct because the topic of discussion is more related to the front end.

So the market is pricing in some significant volatility from Jackson Hole.

Twitter: @MichaelSedacca

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
Position in bonds.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

More From Michael Sedacca
Daily Recap
Volatility Remains Elevated Across Markets
Investors think the Jackson Hole speeches will cause some fireworks.
Michael Sedacca    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

I was going back and forth with a friend a few minutes ago trying to figure out why equity implied volatility - the VIX structure in particular - remains bid in the face of higher equities. We came to the following conclusion:

1. Odds of fireworks from the Jackson Hole speeches over the next 36 hours that include the heads of the Fed, ECB, and Bank of England.
2. The market is still rattled from the large spike in vol at the end of last month and is not in a hurry to sell it as quickly again. As the saying goes, you can sell vol 364 days a year and go broke on day 365.
3. Vol was already crushed earlier this week due to war risk in the Ukraine subsiding. The September contract (August settled yesterday) is down 0.3-0.35 since last Friday.

My thinking is that it is a mix of 1 and 2.

Implied volatility in Treasury futures options similarly remains very well bid. The straddle expiring Friday for the September 10yr future is pricing in a 8.4bps move for the 7yr (remember the cheapest-to-deliver for the 10yr future is a 7yr), which would be somewhat large fireworks. That would equate to a roughly 6.2bps move for the 10yr, relatively speaking. The 5yr future is pricing in a roughly 8.4bps move. Ultra futures and TLT options are factoring in a 2.6bps move, which is frankly on the low side. However, this is probably correct because the topic of discussion is more related to the front end.

So the market is pricing in some significant volatility from Jackson Hole.

Twitter: @MichaelSedacca

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
Position in bonds.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

More From Michael Sedacca
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