Your Week’s Volatility Market Commentary — Make Information Your Edge
Thanks To Those Who Rush In To “Buy the Dip” But What’s Next?
The Weekly Takeaway:
- The S&P 500 gained 0.08% this week thanks to a furious rally of 1.31% from Friday morning’s low as traders came in to once again “Buy the Dip”. The index is now up 14.49% for the year;
- The Nasdaq-100 lost 0.21% this week. It would have been worse but for the 1.93% rally from Friday morning’s low. The index is now up 19.02% for the year;
- S&P 500 VolDex (ticker VOLI) closed at 16.71, an increase of another 4.70% for the week. VOLI is now up 33.89% from its low on October 27 despite the S&P being down just 2.08% from that day’s high;
- S&P 500 TailDex (ticker TDEX) closed at 16.52, an increase of 12.46% for the week. It is now at the 21st percentile of its 52-week range. Important historical metrics for all our indexes including average, median, and critical percentile closes are available to subscribers at NationsIndexes.com;
- All of our volatility indexes on the S&P 500 closed higher on the week;
- VolDex on the Nasdaq-100 rose by 5.78% to close at 23.39. That is the 30th percentile of its 52-week range;
- RiskDex on the Nasdaq-100 rose by 11.59% to close at 3.26. That is its first close above 3.00 in nearly a month;
- Every volatility metric for the Nasdaq-100 rose on the week with the exception of 30-Day CallDex which fell 3.22% as some traders sold out-of-the-money call options to get short exposure to the Nasdaq-100. You can learn more about CallDex at Learn More About CallDex;
- The yield on Treasury notes rose by 5.5 basis points to close at 4.148%;
- Nearly every volatility metric for Treasury bonds was higher on the week. Only Treasury bond TailDex was lower as equity market volatility is seen as putting a floor under Treasury bond prices. We have been pointing out that Treasury bond option prices have been very low for several weeks;
- Bitcoin fell another 8.68% after falling 5.79% in the previous week. Bitcoin futures fell to their lowest level since May 6th. Bitcoin volatility was higher with the exception of Bitcoin TailDex which inexplicably fell by 10.74%;
- Gold rose 1.77% for the week. Volatility measures in gold were generally very strong with Gold VolDex gaining 24.48%;
- VolDex was decidedly mixed for the single names we cover as we discuss below. We believe these changes in volatility are instructive;
- The Nations Indexes Optimism Index® fell by 4.21% to close at 73.53;
- You can always learn more about all our indexes at Learn More About Our Indexes;
- We have added an interesting segment to our weekly Volatility Insight. Trade Spotlight will describe an interesting trade opportunity based on our index values and other metrics like readily available momentum measures. Be certain to check it out. This week we focus on an unusual setup in LLY.
Equity Index Volatility:
The S&P 500 gained 0.08% on the week and it would have been much worse but for Friday’s rally from its morning low. This is the second consecutive week that saw a significant weekly loss tempered by a rally on Friday.
Every one of our S&P 500 volatility metrics was higher on the week with PutDex and TailDex leading the way in an expression of concern for the path of the S&P over the next 30 days. You can see details for the entire S&P 500 option skew below in our Option Window®.
TailDex rose by 12.46% but closed at just the 21st percentile of its 52-week range.
You can learn more about TailDex here.
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.
Nasdaq-100 VolDex rose by 5.78% to close at 23.39.
Nasdaq-100 CallDex fell by 3.22% after falling 6.70% during the previous week. It is now at the 35th percentile of its 52-week range but traders seem to be signaling deteriorating prospects for a continuation of the rally in the Nasdaq-100.
Why It Matters…Traders have to have the objective data provided by our indexes to trade in a way that doesn’t rely on hunches or guesses.
Nations Option Window®:
Our Option Window® graphic shows the impact of buying and selling of S&P 500 options at each point on the skew. Moneyness as defined by standard deviations from at-the-money is constant. Each tenor is always precisely 30-days to expiration.
You can see that every portion of the skew saw higher option prices with deep out-of-the-money put prices gaining the most for the week. It is very unusual to see such an emphatic signal of concern for the S&P 500.
Nations Investor Optimism Index®:
The Investor Optimism Index® fell by 4.21% to close at 73.53.
The index takes into account the current levels of S&P 500 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 Nations Optimism Index.
VolDex Term Structure:
The Nations TermDex® measure of VolDex term structure illustrates S&P 500 VolDex for various tenors. It provides insight into both near-term and longer-term expectations for volatility in the S&P 500.
The normal shape should be upward sloping from lower-left to upper-right. The closer TermDex comes to inverted the more short-term fear there is.
1DTE Options:
S&P 500 1-Day VolDex rose by 9.35% after rising 25.03% during the previous week.
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 rose slightly this week meaning note prices fell. That’s a little unusual because increased volatility in the equity markets usually leads to higher bond and note prices.
Volatility metrics for Treasury notes were mixed but decidedly in the green for Treasury bonds.
Last week saw Treasury Bond VolDex close at the absolute bottom of its 52-week range. It gained 9.17% this week and is now at the 14th percentile of its 52-week range. But short volatility structures are still to be avoided.
Why It Matters…We still believe the ability to buy at-the-money Treasury bond options at historically low prices is a unique opportunity given the risks currently present. While Treasury bond RiskDex is in the lower half of its 52-week range, CallDex is at just the 14th percentile, up from the 4th percentile two weeks ago. Long Treasury bond call options can be a cheap hedge for an equity portfolio since bond prices tend to rally in the face of a significant decline in equity prices.
Click to see a longer-term chart for Treasury Bond VolDex 5-Year Treasury Bond VolDex Chart.
Bitcoin:
Bitcoin fell 8.43% and ended the week below $100,000. Nearly every Bitcoin volatility metric rose on the week.
Bitcoin VolDex is back above 50 which has been an important level for volatility sellers. We’ll see if they rush in to sell that level as they have in the past.
Precious Metals:
The break in gold prices seems to have bottomed with a very small gain in the previous week and a gain of 1.84% this week.
Option volatility in gold rose dramatically this week.
Gold VolDex, CallDex, and PutDex are now all above the 50th percentile of their respective 52-week ranges. Defined-risk strategies that are short gold volatility are once again reasonable alternatives for directional option traders.
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.
Performance of the equities we cover was mixed this week with 6 names gaining ground and 8 names losing ground.
We have begun illustrating how many traders use our indexes to create smarter trades. We post the trade setups below on our Trade Spotlight section and, more importantly, we post them in real time on “X”. None of the trades we mention on “X” at @Nations_Indexes are trade recommendations.
VolDex was similarly mixed. The fact that some AI-related names like NVDA, META, and AMD saw VolDex fall seems counterintuitive but option traders have often noted that when a stock retraces old ground it tends to see implied volatility fall. That is happening in these names as those who were expressing their bullish sentiment by being long options are throwing in the towel.
The increase in volatility on Broadcom (AVGO) stands out. AVGO VolDex is now at the 91st percentile of its 52-week range. AVGO is due to report earnings on December 11, 2025 so our 30-Day metrics will catch that release. Defined-risk but short volatility structures might be interesting here.
We’ll continue to comment during the week via our X account, @Nations_Indexes.
Trade Spotlight:
This week’s Trade Spotlight focuses on LLY which has been in the news regarding its Zepbound anti-obesity drug and potential changes in pricing. This is not a trade recommendation but is instead an illustration of how many traders use our metrics to identify trade opportunities.
LLY shares have been on a tear, gaining 27.71% in the last 19 trading days. The Relative Strength Index (RSI) for LLY just before Friday’s close was 83.24 signaling that the stock is strongly overbought as you might expect given that performance.
LLY RiskDex has been trending lower since April and closed on Friday at 0.94. Any RiskDex reading below 1.00 means CallDex is higher than PutDex and the underlying is displaying call skew.
Since LLY is both overbought and displaying call skew, a collar strategy (short a covered call, long a protective put) can make sense for owners of LLY who are worried about a pullback.
About an hour before Friday’s close, LLY was trading at 1031.57. In the December 19 expiration, the 1160 call could have been sold at 10.40 while the 930 put could have been bought at 10.55. The trade would have cost a net of 0.15. While the owner’s shares would be called away if LLY is above 1160 at that expiration, they would be protected if LLY was below 930 then. LLY was last below 930 as recently as November 7.
Traders who do not own LLY shares could use the setup to execute a call spread collar (short a call spread and long a put).
Why can’t the trade be done for a credit if RiskDex is below 1.00. Only because RiskDex interpolates precise out-of-the-money thresholds and traders are constrained by the actual strike prices listed. RiskDex is still a great indicator for this sort of opportunity.
You can learn more about RiskDex here .
Again, this is not a trade recommendation.
We’ll continue to watch the trade and look for other interesting trade setups.
Scott’s Weekly Commentary:
Thank goodness for dip buyers.
The recent ramp in our volatility metrics clearly indicates that traders and investors were buying protection or replacing long stock positions with long call option positions over the last three weeks. That means that while valuations are clearly stretched, positioning is not. The result was a disappointing week but one that wasn’t horrible as traders and investors entered the week with a reasonable amount of risk.
This week’s volatility action in AI names can be similarly helpful. This week’s decline in VolDex for AI names suggests that those who were long volatility in those names were doing it to get bullish exposure but that they now believe AI names will consolidate, not tank. Nobody wants to own options if the stock is going to move sideways for the rest of the year.
What’s the risk? The market’s estimate of the odds of the Federal Reserve cutting rates by another 25 basis points at its December meeting fell from 67% last Friday to just 44% now. I have thought for some time, and shared with you here, my belief that inflation is too high for the Fed to be cutting rates. If the Fed stands pat and dip buyers refuse to save the day the next time the S&P 500 is lower, then the dynamic will have changed fundamentally.
But I remain a cautious (even more cautious) bull.
Everyone at Nations Indexes hopes you have a healthy and profitable week.
Scott
