S&P 500 Volatility Hits Highest Over Nasdaq 100 Since Pandemic

(Bloomberg) -- In a day full of rare moves, S&P 500 options volatility spiked higher than the Nasdaq 100 for the first time since the Covid pandemic.

The Cboe Volatility Index, or VIX, jumped to 38.57 Monday, 1.1 times the level of the VXN, a similar measure for the Nasdaq 100. The last time it happened was in 2020, and to Citigroup’s Stuart Kaiser it’s a crisis-type dynamic. 

The VIX was also 10 points higher intraday than supported by market internals, according to Citigroup, and closed 6 points above the bank’s fair value estimate based on S&P 500 returns and realized volatility and the VVIX, which measures VIX volatility. 

The VXN rose sharply last week so it looks like a catch-up here, said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. The VIX is also the last place where there is typically still liquidity, so when it spikes more than everything else it typically means we are closer to end of rising volatility, he said.

One-month S&P options volatility surged far more than realized volatility on Monday. Typically the two measures move somewhat in tandem, though at times of market stress they diverge. Investors who may have stepped in on Friday trying to time the bottom of the market were faced with a second day of a spiking VIX and plunging S&P 500.

“The last couple of years, people have been trained to buy the dip because it’s worked every time and they haven’t had any type of turmoil,” said Carley Garner, founder and senior strategist of DeCarley Trading. “For the first time in a long time those aggressive dip buyers felt the pain.”

Some traders are seeing the higher volatility and the selloff as an opportunity, according to Murphy, for whom Monday’s action was reminiscent of the “Volmageddon” in 2018.

“Still see people trying to be opportunistic,” Murphy said, referring to investors selling put options on stocks like Apple Inc. and Nvidia Corp and buyers of iShares MSCI Japan ETF (EWJ US). “The people that are not being opportunistic are the ones with outsized positions who already being forced out.”

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