Market Overview - March 16th 2025
S&P Index Options & Volatility
Following up on last weeks overview:
All major US indices landed in a 10%+ correction territory at the lows last week. Small caps down the most from highs (~19%), blue chips the least at slightly under 10% from peak.
Short dated SPX volatility hit August 2024 highs briefly on NFP & CPI data releases:
VIX briefly hit 30, however, as pointed out by @sdav1986 on twitter, the correction was rather slow, with short 7-DTE delta hedged 10 delta puts being up over the entire correction.
(Orange - SPX, Green - TLT, Blue - Short 7 DTE 10 delta puts delta hedged at close daily)
Going into monthly OpEx this week, pre OpEx week continues to be volatile, with short 7-DTE straddles expiring on Friday losing 4 weeks in a row (since 2020 OpEx week moves exacerbated):
Looking at cross-asset 30-day implied volatility:
On a 2Y lookback, equity vol clear leader as crowded positions unwound on increase in realized volatility following tariff threats and macro concerns (mentioned many times over last year that realized volatility is the single most important input into risk models, leading to systematic price agnostic unwinds.)
Curiously as markets dropped early in the week, short dated vol dropped following CPI release despite SPX making new lows on Thursday.
SPX 25-delta skew flattened last week despite the tepid bounce into Friday. Currently only 1.5% off lows following a 10% correction, would not even classify it as a ‘bounce’. 1M implied correlation moved to 2 year highs, still implying elevated realized volatility going forward. 2.3% weekly straddle feels on the cheaper side, we’ve had daily ranges larger than that last week.
Looking at intraday data:
Short delta hedged straddles ~flat last week but made a lower low early in the week. Systematically selling 1-DTE SPX Straddles without delta hedges now down ~4% since 2024 start, assuming fixed notional bet size, strategy is net FLAT since Aug2017(!)…
Eod momentum continues to be strong since Jan, rest of day period performance rather flat.
Realized Volatility Overview
As highlighted by many on Twitter, main bulk of selling occurring during US RTH session, although the overnight performance has also given up almost 4 months of gains over the last few weeks.
With the short dated vol lower 3 days in a row following CPI and the ‘bounce’ we saw on Friday you would think its clear skies ahead, however, looking at trailing realized volatility measures, no sign of easing seen. Once again reminder that rolling rvol measures dictate net leverage, until we see at least short dated rvol drop likely market foregoes the positive flows needed for a larger bounce.
Market cap & equal weight moving as one with correlations spiking, suggests broad based deleveraging rather than specific sector rotations.
With term structure still inverted (16 days in a row on Friday) this is one of the longer periods historically for the inversion, however, S&P caught up with the mean/median drawdown associated with long periods of inversion. March VX expires tomorrow, April VX flat relative spot VIX, long VX trades not interesting since the 12th of March (more in the VX section.)
SPX ATM Straddle Performance
Every single periodic straddle tracked closed red over the last 6 days. We’ve had Aug levels of short dated vol, but without the actual SPX follow through. CPI premium largest since 2022 played a part but overall the levels we saw implied a much larger follow through than we got.
Intraday Variance Ratio
From the following post:
Intraday - cl.cl vol ratio bottomed Tuesday, we’ve been getting trendier moves cl.cl Thursday & Friday. No bias for Monday as we are back to mid range.
VX Carry & SPX Overlay
From the following post:
Choppy upside grind in VIX-Futures. Was expecting some sort of capitulation spike but instead taken out by the roll to April VX for the system. Triggered out Wed midday as looking at April VX as front month from then, giving back a bit of the gains. Overall a nice win out of the gate for 2025 with a clean entry and without whipsaws for the long VX trade. Still bias is closer to another long VX entry than short VX trade.
As always don’t hesitate to reach out!
Have a great week!