Wall Street's Fear Index is doing something strange. Here's what it means for stocks — SkimNews
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- Cboe Volatility Index touched its highest intraday level since April on Friday, then retreated to close at 19.4; its 2.2-point rise came as the S&P 500 fell nearly 2%.
- SpotGamma analyst Brent Kochuba called the 2.2-point VIX move relatively muted and estimated it should have risen closer to 2.6 points, based on a study of 126 selloffs since 2018.
- Nasdaq 100 Index implied volatility rose for most contracts, but Kevin Davitt’s Nasdaq data showed puts 20% to 50% out of the money were higher on a volatility basis after the Oct. 16 selloff.
- Nations Indexes data showed Nasdaq puts were more expensive two weeks ago, demonstrating that post-selloff demand for protection was selective rather than broad.
- Nomura managing director Charlie McElligott said out-of-the-money S&P 500 puts “just aren't being chased-into”; options skew was barely reactive to the week’s equity selloff, partly because call volatility was “mushed.”
- Morgan Stanley prime brokerage data showed total global gross equity exposure among long-short active managers down 8% from its recent peak, the biggest drawdown in at least 10 years.
- Convexitas CIO Zed Francis called the move a “massive de-levering event” and said managers’ shift toward cash reduced the need to hedge, which he believed was the main reason implied volatility stayed quiet.
Why it matters: Convexitas CIO Zed Francis points to an 8% pullback in long-short managers’ global gross equity exposure—the largest drawdown in at least 10 years—to explain muted options. Managers had moved toward cash and thus had less need to hedge, making the VIX’s 2.2-point reaction a less complete read on stress.
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