The outperformance of “real economy” indexes, i.e. the Russell, Dow, and the banks, relative to the Nasdaq that started in mid-November reversed strongly this week. The volatility market hadn’t been averse to the late fall change in leadership, but the Friday VOL crush that accompanied the rotation back into the Nasdaq was impressive and a good reminder that VOLs are most at ease when the biggest companies in the world lead the market higher. There were a handful of other factors that contributed to the VOL crush besides the rotation back into tech/semis, as I pointed out Friday morning on X and Substack…
- It’s Friday, and the weekend theta decay of options can add supportive flows
- Next week is a short week so there’s accelerated time decay of options, which can add supportive flows similar to #1
- It’s quarterly OpEx – more possible buying flows as repositioning takes place
- The VX board is in healthy contango
But before we got to Friday, there were some interesting developments to topics I’ve addressed in recent episodes such as the VIX-VVIX correlation and clues from fixed strike implied volatilities, specifically on Wednesday this week.
In this week’s episode I dig into all of this plus what the “new” VX futures term structure says about market health post-expiration, if liquidity conditions improved last week, and what the tape was telling us leading up to Friday’s rally.
Here we go!
