{"id":210540,"date":"2024-08-19T13:19:26","date_gmt":"2024-08-19T17:19:26","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=210540"},"modified":"2024-08-20T04:34:10","modified_gmt":"2024-08-20T08:34:10","slug":"mr-market-sez-dont-worry-be-happy","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/options\/mr-market-sez-dont-worry-be-happy\/","title":{"rendered":"Mr. Market Sez: \u201cDon\u2019t Worry, Be Happy\u201d"},"content":{"rendered":"\n<p>(<a href=\"https:\/\/youtu.be\/d-diB65scQU\">Today\u2019s musical accompaniment<\/a>&nbsp;is rather obvious, no?)<\/p>\n\n\n\n<p>The question that I\u2019m most often asked lately involves the rapid rise and fall of the Cboe Volatility Index (VIX) over the past two weeks.\u00a0I was asked it early this morning (at\u00a0<a href=\"https:\/\/www.bloomberg.com\/news\/audio\/2024-08-19\/bloomberg-daybreak-asia-traders-look-to-jackson-hole-podcast?sref=UQoV8r0O\">the 8:25 mark of this audio<\/a>) and on Friday afternoon (at the\u00a0<a href=\"https:\/\/www.bloomberg.com\/news\/videos\/2024-08-17\/stocks-see-best-week-in-24-bloomberg-the-close-8-16-2024?sref=UQoV8r0O\">39:25 mark of this video<\/a>).\u00a0My answers usually hinge upon the fact that VIX is not designed as a \u201c<a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/vix-its-not-just-complacency\/?query=not%20a%20fear%20gauge&amp;query_id=f53f708c9cb719e0010e15108a6fe702&amp;index=prod_ibkrcampus_en&amp;user_token=anonymous-7fefcd06-7c8d-478d-b7d3-a0a562d208c2\">fear gauge<\/a>\u201d, but instead measures the \u201c<a href=\"https:\/\/www.cboe.com\/tradable_products\/vix\/\">30-day expected volatility of the U.S. stock market<\/a>.\u201d\u00a0Considering the events that are due in the coming 30-day period \u2013 the \u201cknown unknowns\u201d, so to speak \u2013 the low VIX tells us more about how sanguine investors are about them.<\/p>\n\n\n\n<p>Please tell me if you think that any of these events might have the ability to meaningfully change the market\u2019s mood or direction:<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;August 23<sup>rd<\/sup>: Fed Chair Powell speaks at Jackson Hole<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;August 28<sup>th<\/sup>: Nvidia (NVDA) earnings<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;August 30<sup>th<\/sup>: Core PCE<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;September 6<sup>th<\/sup>: August Nonfarm Payrolls and Unemployment<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;September 11<sup>th<\/sup>: CPI<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;September 12<sup>th<\/sup>: PPI<\/p>\n\n\n\n<p>And by the way, as of today, this minor event is within 30 days:<\/p>\n\n\n\n<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;September 18<sup>th<\/sup>: FOMC Announcement<\/p>\n\n\n\n<p>Throw in the fact that liquidity often suffers around the end of the summer and that September is a seasonally difficult month \u2013 the 10-year average return for the S&amp;P 500 (SPX) is -1.19% \u2013 and it does seem interesting that volatility assumptions have ebbed substantially.\u00a0\u00a0Bearing in mind that the last two Septembers have been treacherous -19.55% (2022) and -11.86% (2023), it seems short sighted for investors to price SPX index options so that the VIX index that is derived from them is only 14.70 right now.\u00a0\u00a0<\/p>\n\n\n\n<p>But there is another factor that is pressuring VIX.\u00a0On July 8<sup>th<\/sup>,\u00a0<a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/vix-its-not-just-complacency\/?query=not%20a%20fear%20gauge&amp;query_id=f53f708c9cb719e0010e15108a6fe702&amp;index=prod_ibkrcampus_en&amp;user_token=anonymous-7fefcd06-7c8d-478d-b7d3-a0a562d208c2\">we pointed out<\/a>\u00a0that certain correlation measures were at all-time lows, and that those low correlations along with high dispersion readings were suppressing index volatility overall.\u00a0Our timing was auspicious, because even though the Cboe 1-Month Correlation Index (COR1M) dropped even further in the following week, VIX didn\u2019t follow, and instead turned higher shortly thereafter.\u00a0That rise culminated with the events of two weeks ago.<\/p>\n\n\n\n<p>And now\u2026. We\u2019re back.\u00a0After spiking on the\u00a0<a href=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/carried-away-then-carried-out\/\">unwinding carry trade madness<\/a>, correlations have since plunged.\u00a0They\u2019re not back to early July lows but are indeed back to the low levels that preceded them.\u00a0Meanwhile, the Cboe Dispersion Index (DSPX) remains near its recent elevated levels.\u00a0<\/p>\n\n\n\n<p><strong><em>5-Years, VIX (magenta), COR1M (white), DSPX (blue)<\/em><\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large is-resized\"><img decoding=\"async\" width=\"1100\" height=\"608\" data-src=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/08\/VIX-COR1M-DSPX-1100x608.png\" alt=\"\" class=\"wp-image-210541 lazyload\" style=\"--smush-placeholder-width: 1100px; aspect-ratio: 1100\/608;width:950px;height:auto\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/08\/VIX-COR1M-DSPX-1100x608.png 1100w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/08\/VIX-COR1M-DSPX-700x387.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/08\/VIX-COR1M-DSPX-300x166.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/08\/VIX-COR1M-DSPX-768x424.png 768w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/08\/VIX-COR1M-DSPX.png 1528w\" data-sizes=\"(max-width: 1100px) 100vw, 1100px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" \/><figcaption class=\"wp-element-caption\">Source: Bloomberg<\/figcaption><\/figure>\n<\/div>\n\n\n<p>In short, investors and traders have quickly returned to the playbook that has been working so well for them for the past several months: buy megacap technology stocks, add in some periodic enthusiasm for the rest of SPX and the Russell 2000 (RTY), and don\u2019t bother hedging.\u00a0(Why hedge when every dip is a short-term buying opportunity, right?)\u00a0\u00a0<\/p>\n\n\n\n<p>But&nbsp;<a href=\"https:\/\/www.ft.com\/content\/8bf84d1d-cac3-412f-a261-50d3251c0dcc\">I made this comment<\/a>&nbsp;recently, and I can\u2019t shake the idea that there is more to it than an old adage:<\/p>\n\n\n\n<p><em>My concern is that [investors have] been rewarded for following the first part of Warren Buffett\u2019s mantra about being greedy when others are fearful but they might not be so much following the second part about being fearful when people are greedy.<\/em><\/p>\n\n\n\n<p>Remember, the guy that the quote referenced just sold half of his huge Apple (AAPL) and is carrying a record amount of cash.\u00a0But don\u2019t worry, be happy \u2013 at least for now.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The question that I\u2019m most often asked lately involves the rapid rise and fall of the Cboe Volatility Index (VIX) over the past two weeks. [&#8230;] My answers usually hinge upon the fact that VIX is not designed as a \u201cfear gauge\u201d, but instead measures the \u201c30-day expected volatility of the U.S. stock market.\u201d\u00a0Considering the events that are due in the coming 30-day period \u2013 the \u201cknown unknowns\u201d, so to speak \u2013 the low VIX tells us more about how sanguine investors are about them.<\/p>\n","protected":false},"author":4,"featured_media":210544,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6,19,8,9,22,26,3],"tags":[3598,4574,4109,44],"contributors-categories":[13576],"class_list":{"0":"post-210540","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-north-america","8":"category-options","9":"category-region","10":"category-securities","11":"category-stocks","12":"category-text-articles","13":"category-traders-insight","14":"tag-market-outlook","15":"tag-options-trading","16":"tag-stock-market","17":"tag-stocks","18":"contributors-categories-interactive-brokers"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Mr. Market Sez: \u201cDon\u2019t Worry, Be Happy\u201d<\/title>\n<meta name=\"description\" content=\"The question that I\u2019m most often asked lately involves the rapid rise and fall of the Cboe Volatility Index (VIX) over the past two weeks. [...] My...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/posts\/210540\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Mr. Market Sez: \u201cDon\u2019t Worry, Be Happy\u201d | IBKR Campus US\" \/>\n<meta property=\"og:description\" content=\"The question that I\u2019m most often asked lately involves the rapid rise and fall of the Cboe Volatility Index (VIX) over the past two weeks. [...] My answers usually hinge upon the fact that VIX is not designed as a \u201cfear gauge\u201d, but instead measures the \u201c30-day expected volatility of the U.S. stock market.\u201d\u00a0Considering the events that are due in the coming 30-day period \u2013 the \u201cknown unknowns\u201d, so to speak \u2013 the low VIX tells us more about how sanguine investors are about them.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/options\/mr-market-sez-dont-worry-be-happy\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus US\" \/>\n<meta property=\"article:published_time\" content=\"2024-08-19T17:19:26+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-08-20T08:34:10+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/08\/stock-market-be-happy.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1000\" 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