Link to Report: Macro Volatility Digest

WHAT STANDS OUT:

• Implied volatilities were mixed across asset classes last week as oil prices spiked on renewed geopolitical tensions. Oil volatility jumped another 8 pts, with the OVX Index now at a 2-month high of 68% and trading on par with gold as the richest cross-asset volatility. Rates vol increased ahead of this week’s FOMC meeting with markets now pricing in a full rate hike by September.
• While overall levels of the VIX^® Index remain fairly muted at 18, we’re seeing increasing signs of risk aversion underneath the index surface. For example, the implied volatility risk premium has been increasing steadily in recent weeks, with the spread between SPX^® 1M implied vs. realized volatility widening from -5% to +5% and is currently screening in the 73rd percentile high over the past year. This suggests traders are positioning for broader market volatility to pick up in the coming weeks. Demand for protection has also increased notably, with SPX 1M skew screening in the 82nd percentile high currently.
• With the bulk of mega-cap Tech earnings coming this week, what stands out is how bullish retail investors have gotten on the hyperscalers in recent months even as those names have struggled lately. Over the past month, call buying made up 55% of the retail opening activity in the hyperscalers on our exchanges – near the highest level in the past 6 years and 10 pts higher than average (see chart below). In contrast, retail sentiment in the chip stocks appear more balanced, with call buying making up 46% of all opening activity, in line with the historical average.

Chart: Bullish Retail Positioning in the Hyperscalers

^{Source: Cboe}

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