WHAT STANDS OUT:
- While most asset class volatilities fell last week, oil volatility jumped notably. WTI 1M implied vol gained over 7 pts to 50.6% as oil prices slid to a 4-year low. Oil skew also steepened notably, signaling rising risk of global recession. This is in sharp contrast to equity and credit volatility, with VIXIG (IG credit vol) back to its long-term average.
- While SPX® index has retraced its entire April loss, the options market is signaling more caution. Compared to April 2nd (pre-“Liberation Day”), the VIX® index is about 1.2 pts higher. This is despite single stock vol falling during this period, with VIXEQ down 1.2 pts on the back of better-than-expected earnings. The higher VIX is on the back of two main factors: higher index skew and higher implied correlation. S&P 1M implied correlation is up over 10 pts compared to a month ago.
- Meanwhile skew has also steepened significantly. Despite SPX rallying over 10% in the last two weeks, we’re not seeing any upside chasing. In fact, SPX 1M call skew has fallen from the 49th to 13th percentile low (see chart below). Investors have used the rally to reset hedges, with 1M put skew jumping to the 88th percentile high.
Chart: No Upside Chasing Despite SPX Rebound
Source: Cboe
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Originally Posted on May 5, 2025 – Options Market Signals Skepticism of Market Rebound
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