Your Week’s Volatility Market Commentary — Information Is Your Edge

The Weekly Takeaway:

• The S&P 500 lost 2.43% for the week due to a loss of 2.71% on Friday as President Trump threatened new tariffs against China. The S&P 500 is now up 11.41% for the year;
• The Nasdaq-100 lost 3.49% on Friday and 2.27% for the week. The index is now up 15.27% YTD;
• S&P 500 VolDex (ticker VOLI) closed at 18.05, a gain of 36.43% for the week. That is its highest level since May. VolDex’s closing value is the 26th percentile of its 52-week range;
• S&P 500 TailDex (ticker TDEX) closed at 18.95, a gain of 17.82% for the week. This week’s close is the 27th percentile of its 52-week range;
• S&P 500 CallDex fell by 5.97% as traders sold out-of-the-money call options to get short exposure to the S&P 500, signaling their belief that a short-term bounce is unlikely;
• VolDex on the Nasdaq-100 rose by 31.51% to close at 23.00. That is the 28th percentile of its 52-week range;
• RiskDex on the Nasdaq-100 rose by another 25.85% to close at 3.61. RiskDex measures the relationship between the normalized prices of out-of-the-money puts (PutDex) and out-of-the-money calls (CallDex);
• The yield on the Treasury notes fell by 6.8 basis points and ended the week at 4.051% due to a rally in Treasury note prices as investors displayed a “flight to quality” as equities fell and showed a belief that the economy is likely to slow if the latest proposed tariffs are implemented;
• Every volatility measure on Treasury notes and bonds rose on the week with the exception of RiskDex which fell in both tenors for both notes and bonds because CallDex gained more than PutDex;
• Bitcoin volatility rose with VolDex gaining 9.72% after gaining 6.70% and 11.26% in the previous two weeks;
• VolDex rose for every equity name we cover with the exception of LLY (LLY VolDex fell 1.40%). This follows last week when VolDex rose for every equity name we cover;
• The Nations Indexes Optimism Index® fell by 18.90% to close at 64.20.

Equity Index Volatility:

The S&P 500 lost 2.71% on Friday but that brings it back to the level it was at as recently as mid-September.

While nearly all volatility measures spiked, the damage was mitigated by the curious increase in volatility we’ve been commenting about over the previous two weeks. For example, last week we noted that TailDex rose by 23.37% in the previous week and that “Traders have reversed themselves” and believed a “tail event” was more likely although it appeared it would be related to the government shutdown rather than renewed tariffs.

S&P 500 volatility measures are still in the bottom half of their 52-week ranges.

RiskDex rose by 1.60 to close at 5.26, a gain of 43.87%. This comes after gains of 8.11% and 10.61% in the previous weeks. It closed at the 66th percentile of its 52-week range. The moves of the previous weeks highlight the importance of watching a variety of volatility measures to understand what the markets are really saying.

Historical metrics (Average, median, 10th percentile, 25th percentile, 75th percentile, and 90th percentile) for all out indexes are available to subscribers at NationsIndexes.com.

Why It Matters…Historical data for all our indexes is available to subscribers at the Everything! level and they allow option traders to understand the context of the current option pricing environment – the current environment, while not unique, is unusual. Volatility is mean-reverting and that is a phenomenon traders can take advantage of in both directions. But you have to understand what normal is, what the “mean” is, in order to do so.

Last week we pointed out that, “RiskDex on the Nasdaq-100 rose by 2.76% to close at 2.87…signaling a fair amount of worry regarding the Nasdaq-100 on the part of traders. RiskDex measures the relationship between the normalized prices of out-of-the-money puts (PutDex) and out-of-the-money calls (CallDex);”

We also pointed out that, “Results for Nasdaq-100 volatility were even more cautious than those for the S&P 500 with all 30-Day metrics gaining ground.”

This week’s volatility action was even more emphatic with every volatility measure on the Nasdaq-100 gaining at least 16% for the week with the exception of 30-Day CallDex which demonstrated traders were selling out-of-the-money calls in the Nasdaq-100 to get short exposure and because they think a short-term rally is unlikely.

Why It Matters…We have been pointing out that volatility measures for the equity indexes remain historically low given the government shutdown, looming earnings releases, stretched valuations, and being in a period of the calendar which is often volatile. But traders have to have the objective data provided by our indexes to quantify those relationships.

VolDex Term Structure:

Term structure for S&P 500 VolDex was very little changed most of the week until it changed dramatically and abruptly on Friday. The downward shaped slope to Friday’s closing term structure (in red) signals significant short-term concern for the S&P 500. Friday’s closing VolDex term structure is in red while the week’s other closes are in black (Thursday) and gray for earlier days in the week.

Nations Option Window®:

Our Option Window® graphic shows the impact of buying and selling at each point on the skew. Moneyness as defined by standard deviations from at-the-money is constant as is the precisely 30-day time to expiration.

You can see that option buying was evenly spread across the bulk of the skew and gave way only for strike prices well above at-the-money as those call options were sold by traders seeking short exposure to the S&P 500.

Nations Investor Optimism Index®:

The Investor Optimism Index fell by 18.90% to close at 64.20 so optimism, as measured by implied volatility, is falling but remains above the midline of 50.

The index takes into account the current levels of S&P VolDex, TailDex, and RiskDex and compares them to their rolling 2-year ranges. It is plotted on a 0 to 100 scale.

Our Optimism Index is now available in real-time on our home page at NationsIndexes.com.

1DTE Options:

S&P 500 1-Day VolDex gained 178.15% for the week to close at 18.03.

Very short-dated volatility measures which use a variance swap methodology, as 1-day VIX does, inject significant error into the resulting measure because of the way out-of-the-money options trade in the hours before expiration. The VolDex at-the-money methodology is particularly suited for these very short-dated tenors.

Other Asset Volatility:

Treasury Bonds and Notes:

The yield on 10-year Treasury notes fell as investors sought the safety of treasuries and as the potential grows that the renewed tariff battle will put the brakes on our economy.

Implied volatility for both Treasury notes and bonds rose.

Last week we pointed out that, “Treasury Bond VolDex posted its lowest closing level of the year on Friday, 11.05.” Those who took advantage with long volatility strategies were rewarded.

Why It Matters…Last week we also noted that, “The ability to buy at-the-money Treasury bond options at historically low prices is a unique opportunity given the risks currently present.” This remains true because while implied volatility in treasuries is higher than it was last week, it’s still relatively low. Short volatility structures should be avoided.

Bitcoin:

Bitcoin volatility rose again this week with VolDex gaining 9.72% after gaining 6.70% in the previous week.

Traders will be watching for opportunities to short bitcoin options if Bitcoin VolDex recaptures the 50 level.

Precious Metals:

Gold futures traded above $4000/oz this week and closed at $4035.50, a gain of 3.22%.

Gold VolDex gained 34.24% to close at 22.31.

Gold CallDex gained 44.34% to close at 64.44, its highest level since June.

Equities:

We have expanded the list of single names we cover to include not only the most dynamic stocks in the S&P 500 and the stocks with the highest option volume, but also the largest names in the S&P 500.

Every equity we cover lost ground on the week with the exceptions of AMD and PLTR. AMD gained 30.50% on news of a partnership with OpenAI which will deploy AMD GPUs as it builds out its next-generation AI infrastructure.

AAPL was the big loser with a decline of 4.94% as investors worry about AAPL’s offerings in the AI space.

Last week we noted that VolDex was higher in every individual name we cover in what was a warning to investors that traders would be quick to sell stocks in the face of bad news. That bad news came this week.

This week’s volatility price action was very similar with VolDex rising in every individual name we cover with the exception of LLY. VolDex rose by 31.81% in AMD, 24.68% for NVDA, and 23.02% for PLTR as investors with sizeable gains in AI names seek protective strategies.

Metrics in AMD were higher across the board. This increase in RiskDex is notable in the face of the rally in share price. RiskDex above 1.00 tells us that options are displaying put skew (PutDex higher than CallDex) so investors are using this week’s rally to put on hedges at attractive levels.

Last week we noted that “PutDex rose for every equity we cover with the exception of BRKB (down 1.04%).” The same dynamic played out this week with LLY taking the place of BRKB as the only name where PutDex fell.

Scott’s Weekly Commentary: