Market Overview - March 23rd 2025
S&P Index Options & Volatility
Following up on last weeks overview:
The ‘liberation’ (as Trump refers to tariffs) date is on Wednesday this week. Markets clearly going into the event with the right mindset. The uncertainty of current climate will be a drag on markets & equity volatility is unlikely to subside. It is also not the event itself but rather the absence of any plan or communication as to the expected outcomes that is the main concern for equities…
SPX straddles went into the weekend nearly at the highest levels in a year. After the initial bounce early in the week took us down to a bit too optimistic levels of implied vol.
Looking at cross-asset vols, equity vol leading higher on a 2Y lookback, somehow currency basket implied vols (EURUSD largest weight) FELL to Feb lows by eow… Even with equity vol higher as of Monday morning gap down, still well off pre OpEx week highs (~30 VIX level March 10-11th.)
CBOE also advocates for VIX derivatives as go to hedging instruments given the favorable reaction function of SPX implied volatility to downside moves & overall uncertainty.
Little steepening in skew after eow drop, still flat relative to Feb.
Looking at intraday data:
Short systematic 1-DTE SPX straddles performance down to 1Y lows after short dated vol got way too optimistic early last week. Its been generally profitable to sell gamma on spikes in short dated vol as we have not had any follow through to the downside, buying drops in short dated vol (as mentioned previously in the intraday vol ratio and other posts) has likewise been a good opportunity to get long for a resumption of volatility.
Eod momentum continues to struggle last few weeks as everyone likely already hedged / adjusted portfolios for the realized volatility we’ve been seeing.
Realized Volatility Overview
S&P now up only ~7% yr/yr, RTH performance down ~10% since last March. Overnight performance better overall but largely flat over last 3-4 months.
Starting to see some divergence between cl-cl rvol measures and intraday range based measures. Gaps starting to get bought, intraday highs/lows contracting even with cl-cl higher, something you see around local peaks/bottoms. Once the overnight move gets digested market realizes vol no different from last years May correction period.
Small caps remain the biggest loser since elections. Correlations spiking higher so seeing equal weight / large caps move in line on broad deleveraging.
The best performing ‘trade’ over last few years (gap up into Thursday) finally seeing some retracement (peaked 4+ sharpe over last 12 months.)
VIX-Futures still following similar playbook to last year and a half of overnight drops / US session bid. Not much ‘carry’ to enjoy…
SPX ATM Straddle Performance
Overall 1-DTE straddles opened from prior close up ~52pts on the week, overnight, early morning straddles net positive (albeit not by much ~5-20pts up on the week.) Biggest losers we’re eod opened straddles, 1PM straddles net down ~90pts on the week & 2PM down 47pts on the week.
Intraday Variance Ratio
From the following post:
Wed/Fri major intraday trend days, Thursday heavy mean reversion intraday. Friday closing with 5 day average back to highest level since end of Feb, going into Monday short straddle bias.
Continues to be beneficial to look at intraday / cl-cl variance to look for extremes…
VX Carry & SPX Overlay
From the following post:
Been no edge in long / short VX since the roll to April earlier in March. Avoided a lot of the nasty whipsaws lately, will never catch exact bottom unfortunately… Still wait and see mode, nowhere near short vx positioning yet (and I don’t really see with the headlines how we can get there before mid/late April…)
As always don’t hesitate to reach out!
Have a great week!
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