VIX Retreats Despite Nearly 2% S&P 500 Drop as Options Traders Stay Calm

According to CNBC, the Cboe Volatility Index (VIX) reached its highest intraday level since April on Friday before retreating to close at 19.4, as the S&P 500 fell nearly 2%. Stocks posted their worst week since June. SpotGamma’s Brent Kochuba said the VIX’s 2.2-point move was relatively small; his analysis of 126 selloffs since 2018 indicated it should have risen closer to 2.6 points. Nasdaq data showed that implied volatility rose after the Oct. 16 sell-off for puts 20% to 50% out of the money, while Nations Indexes data showed Nasdaq puts had been more expensive two weeks earlier. Nomura managing director Charlie McElligott said S&P 500 out-of-the-money puts were not seeing strong demand, and that index-options skew had reacted little to the week’s equity sell-off. Morgan Stanley prime brokerage data showed global gross equity exposure among long-short active managers was down 8% from its most recent peak, the largest drawdown in at least 10 years. Convexitas CIO Zed Francis said reduced leverage and increased cash holdings may explain why implied volatility remained subdued.