Macro Wrap – Options Markets Yawn as Shutdown Trudges Along, $VIX

by Enis October 3, 2013 7:12 am • Commentary

As we start the day with futures indicating a down open for the 4th time in the last 5 days, the gradual nature of the decline since the Fed decision day is interesting.  If the SPX index closes down today, it will be the 9th down session out of the last 11, but the index is only down about 40 points in that period.

Since realized volatility has been low, implied volatility in equity, debt, commodity, and currency markets have all remained quite subdued.  As the political headlines get more heated, however, some short-term volatility metrics have started to react.  The VIX’s price action yesterday was notable – up 7% to 16.60 even as the SPX index closed near unchanged.  In fact, VIX spot is near the same level it was at the late August/early Sept lows in the market, when the SPX was trading between 1630 and 1650, as opposed to between 1680 and 1700 as we are currently.

Yet, most global assets remain calm overall.  Here is the VCA screen, Courtesy of Bloomberg, illustrating 3 month at-the-money implied volatility figures (blue) vs. the 52 week averages (orange):

VCA screen 100313, Courtesy of Bloomberg
VCA screen 100313, Courtesy of Bloomberg

Gold is the only major asset that has implied volatility significantly above its 52 week average (it is also one of the few assets listed above that is in a bear market).  Implied volatility for practically everything else shows little concern.

Despite all the headlines, asset prices are simply not moving much.  Until they do, options traders have little incentive or desire to bid up implied volatility levels, no matter what politicians might say or think.