Options Market Braces for 2022-Style Volatility on Iran
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- Oil and natural gas spikes are rippling through supply chains, shifting trader focus from single-stock themes like AI to macroeconomic worries and narrowing the volatility premium for individual shares versus the S&P 500.
- The VIX has not closed above 30 points in 2025, compared with 2022 when it averaged 25.64 and periodically surpassed 30 after Russia's invasion of Ukraine; the S&P 500 fell 19% that year.
- UBS derivatives strategist Kieran Diamond said investors are using the 2022 playbook, warning an inflation shock could shift the VIX from 'fast rises and reversals' to a regime where the VIX floor rises and volatility stays sustainably higher.
- The Cboe Skew Index has calmed recently, possibly because investors unwound hedges after becoming 'disillusioned with vanilla index puts,' UBS strategists said.
- Citigroup's Michele Cancelli said there is 'little evidence of a rush into the short volatility trade' via VIX put structures, adding the market is 'not far enough through the Iran-driven volatility window' for conviction.
- Janus Henderson's David Elms said the best risk/reward is being long index volatility and long intra-index correlation via reverse dispersion, given implied correlation sits at low levels with a floor of effectively zero.
- Intraday realized volatility is notably higher than close-to-close, with persistent intraday reversals — including a Thursday rebound into the close — suggesting a countertrend cohort is still active despite consensus that dealers are short gamma into quarterly expiry.
Why it matters: The 2022 playbook matters: with the S&P 500 falling 19% that year and the VIX averaging 25.64, the same inflation-driven volatility template could play out — and with derivatives strategists consensus that dealers are short gamma into quarterly expiry, the mechanical setup for amplification is already in place.
