Macro Volatility Digest

January 22, 2024

Equity/Rate Correlation Turns Positive as Stocks Hit Record High

Weekly Market Commentary

Cross-Asset Volatility: Implied volatilities were mixed across Exhibit 1: Biggest Macro Equity Vol Movers Wk/Wk
asset classes last week as bond yields rose on the back of
better-than-expected economic data. US rate vol (MOVE Index)
fell marginally, down 1.5nms to 105 bps vol. Oil volatility (OVX
Index) declined the most, down almost 5pts to 35.8% on the
improving growth outlook. Even as the odds of a Fed cut in
March got reduced by almost half (from 80% to now ~48%),
equities were able to rally to all-time highs while credit spreads
tightened to new 2-year lows. Implied vols, on the other hand,
increased with VIX® Index up 0.6 pt wk/wk and credit VIX (VIXIG
Index) up 2.0 pts to 13.3% and 24.0 bps vol, respectively. On a
1-year lookback, every asset class vol is currently trading in the
bottom quintile with the notable exception of oil (~47th %tile high).
Source: Cboe
Equity Volatility: Spot up/vol up was the notable theme in US
index vols last week as implied vols gained on the back of the
Exhibit 2: VVIX/VIX Beta Jumps Higher
record-setting SPX® Index rally. While overall spot/vol beta
remains muted, we’ve seen the VVIX/VIX Index beta jump
sharply higher – i.e. vol-of-vol becoming more reactive to
changes in the VIX Index – following the recent record block print
in VIX (customer bought 250k of the Feb 17-strike call) leaving
dealers short a lot of VIX convexity on the upside. Globally, FXI
(China ETF) screens as the richest index vol, with 1M implied vol
jumping 3.5 pts to 31.1% (88th percentile high) as the Chinese
equity slump deepened (now almost completely wiping out its
entire post-reopening rally, back to near post-GFC low).

Skew: Index skew flattened wk/wk as demand for upside calls

picked up – this was particularly pronounced in QQQ where 1M
skew (25-delta spread) fell from 3.2% to 2.2% (7th percentile low) Source: Cboe
driven almost entirely by the call side. While put vols remained
relatively unch’d, 1M 25-delta call vols increased from 13.9% to Exhibit 2: Equity/Rate Correlation Turns Positive
15.1% last week as Tech rallied to new all-time highs ahead of
earnings.

Term Structure: SPX term structure flattened last week – while

front end vols remained supported, longer-dated vols fell. SPX
1Y implied vol declined 0.3 vol pt to a new 3-year low of 15.2%.

Correlation & Dispersion: We highlighted last week that the

options market appears to be pricing less dispersion this
earnings season, with DSPXSM (Cboe S&P 500 Dispersion Index)
trading ~27% vs. the 29-30% range at the start of the last 4
earnings seasons. Equity/rate correlation turned positive last
week, with the SPX/10Y 1M rolling correlation hitting a 6-months
high of +9%, with both equity and rates gaining on the back of
the improving macroeconomic outlook. Source: Cboe

Mandy Xu, VP, Head of Derivatives Market Intelligence

mxu@cboe.com © 2023 Cboe Exchange, Inc. All Rights Reserved.
 Macro Volatility Digest
January 22, 2024

Cross-Asset Volatility Monitor

Equity Vol (1M Implied vs. Realized) Rates Vol (1M Implied vs. Realized) IG Credit Vol (1M Implied vs. Realized)
30 250 80

70
25
200

Volatility (bps annl)

Volatility (bps annl)
60
Volatility (%)

20
50
150

15 40

100 30
10
20
50
5
10

0 0 0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23

VIX Index SPX 1M Realized Vol MOVE Index Rates 1M Realized Vol VIXIG Index CDX IG 1M Realized Vol
Source: Cboe Source: Cboe Source: Cboe

Oil Vol (1M Implied vs. Realized) EURUSD Vol (1M Implied vs. Realized) USDJPY Vol (1M Implied vs. Realized)
60 12 16

14
50 10
12
Volatility (%)

Volatility (%)
Volatility (%)

40 8
10

30 6 8

6
20 4
4
10 2
2

0 0 0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23

OVX Index Oil 1M Realized Vol EURUSD 1M Implied Vol EURUSD 1M Realized Vol USDJPY 1M Implied Vol USDJPY 1M Realized Vol
Source: Cboe Source: Cboe Source: Cboe

Cross-Asset Volatility Snapshot (10Y Lookback)

Cross-Asset Volatility (10Y Z-Scores)

6
How to read this chart:

5 The chart shows how various asset class implied

volatilities are trading relative to their own history, using
4 a 10-year lookback.

The volatilities are ranked by z-scores, which compares

Z-scores (10Y)

3
the current volatility level for an asset versus its own 10-
year history. A z-score of +2, for example, would mean
2 that the current volatility level is trading 2 standard
deviations above its long-term average (i.e. rich) while a
1 z-score of -2 would mean it’s trading 2 standard
deviations below average (i.e. cheap)
0
Because each asset class volatility trades at different
levels and often defined differently (e.g. lognormal vs.
-1 normal vol, price vs. bps vol), by standardizing using z-
scores, we’re able to compare different asset class
-2 volatilities on the same scale - and see at a glance if
Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 there are any divergences or dislocations in the cross-
asset volatility markets
Equity (VIX) Rates (MOVE) Oil Gold FX IG Credit (VIXIG)

Source: Cboe

Mandy Xu, VP, Head of Derivatives Market Intelligence

mxu@cboe.com © 2023 Cboe Exchange, Inc. All Rights Reserved.
 Macro Volatility Digest
January 22, 2024

Cross-Asset Correlation Matrix (1M)

Equities Corporate Credit Rates Commodities Foreign Exchange
SPX RTY SX5E NKY MXEF IBIG ($IG) IBHY ($HY) CDX IG CDX HY Tsy 10Y Tsy 30Y Oil Gold Copper EURUSD USDJPY GBPUSD
SPX
RTY 83%
Equities

SX5E 25% 40%

NKY -27% -33% 14%
MXEF 7% 28% 35% -18%
IBIG ($IG Bonds) 37% 59% 21% 24% 35%
Corporate
Credit

IBHY ($HY Bonds) 61% 67% 8% 19% 0% 86%

CDX IG -83% -69% -21% 11% 5% -44% -69%
CDX HY -88% -79% -21% 22% -1% -52% -74% 96%
Rates

Tsy 10Y -15% -36% 1% -32% -22% -89% -80% 25% 34%
Tsy 30Y -16% -43% -6% -22% -41% -89% -73% 15% 27% 95%
Foreign Commodi-

Oil -22% -7% -38% 3% -4% -1% 3% 21% 15% -25% -26%
ties

Gold 50% 67% 19% -15% 12% 51% 61% -55% -62% -46% -39% 33%
Copper 21% 55% 25% 1% 54% 52% 41% -8% -15% -43% -62% 1% 17%
Exchange

EURUSD 57% 72% 12% -28% 29% 47% 59% -55% -59% -39% -44% 25% 65% 60%
USDJPY -44% -52% -13% 29% -39% -70% -63% 53% 63% 62% 58% 1% -54% -19% -39%
GBPUSD 49% 60% 8% -17% 25% 38% 48% -40% -43% -32% -40% 31% 47% 61% 88% -26%
Source: Cboe

Cross-Asset Correlation Analysis

Equity-Rates Correlation (1M) Equity-Corp Bond Correlation (1M) Equity-Oil Correlation (1M)
100% 100% 80%

80%
SPX vs. 10Y Tsy Yield 80% 60% SPX vs. Oil (WTI)
60%
60%
40% 40%
Correlation (%)

40%
Correlation (%)
Correlation (%)

20%
20%
0% 20%
0%
-20%
0%
-40% -20%
-20%
-60%
-40% SPX vs. IG Bonds (IBIG Futures) -40%
-80%
RTY vs. HY Bonds (IBHY Futures)
-100% -60% -60%
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24

Source: Cboe Source: Cboe Source: Cboe

Equity-Gold Correlation (1M) Equity-FX Correlation (1M) Equity-FX Correlation (1M)

100% 80% 70%

SPX vs. GLD SX5E vs. EURUSD 60% NKY vs. USDJPY
80%
60%
50%
60%
40% 40%
40%
Correlation (%)

Correlation (%)
Correlation (%)

30%
20% 20%
20%
0%
0%
10%
-20%
0%
-20%
-40%
-10%
-60% -40%
-20%

-80% -30%
-60%
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24
Source: Cboe Source: Cboe Source: Cboe

Mandy Xu, VP, Head of Derivatives Market Intelligence

mxu@cboe.com © 2023 Cboe Exchange, Inc. All Rights Reserved.
 Macro Volatility Digest
January 22, 2024

Macro Equity Volatility

Implied- Implied vs. Realized Volatility
1M Implied Percentile 1M Realized Percentile
Ticker Wkly Chg Realized
Vol (1Y) Vol (1Y)
Spread 35
SPX 11.0 0.2 14 10.1 0.9 18 FXI
USO
US

RTY 19.5 -0.1 49 18.8 0.7 39 30

QQQ 15.9 0.8 14 15.3 0.6 21

1M Realized Volatility
25
SX5E 12.3 0.8 22 9.8 2.6 60 Cheap
International

DAX 12.1 0.6 21 9.6 2.6 55 RTY

20
MXEF 16.1 0.6 58 14.6 1.5 30 EWZ
MXEA 12.2 -0.7 19 11.4 0.8 40 QQQ
15 TLT MXEF
EWZ 23.2 -0.3 0 17.9 5.2 11 MXEA
SPX
FXI 31.1 3.6 88 31.5 -0.3 12 10 SX5E
LQD GLD
USO 32.5 -3.8 37 30.1 2.4 54 HYG
Rich
Cross-Asset

GLD 11.0 -0.8 18 10.2 0.8 58 5

TLT 14.9 0.8 21 13.9 1.0 78
0
IEF 7.4 -0.3 3 6.3 1.1 76
0 5 10 15 20 25 30 35 40
LQD 8.5 0.2 20 7.8 0.8 68
HYG 6.2 -0.1 22 5.6 0.6 65 1M Implied Volatility (%)
Source: Cboe Source: Cboe

Biggest Weekly Vol Movers 1M Implied Volatility Range (1Y Lookback)

4 50
3 45
Current
Change in 1M ATM Vol (Pts)

2 40

1 35

0 30

-1 25
20
-2
15
-3
10
-4
5
-5
0
USO FXI SX5E GLD QQQ TLT SPX RTY QQQ SX5E MXEF MXEA EWZ FXI USO GLD TLT LQD HYG
Source: Cboe Source: Cboe

VIX Index Volatility

Spot-Vol Beta (VIX vs. SPX, VVIX vs. VIX) VIX Futures Curve
4.0
6.0 -1.8 2nd Month vs. 1st Month (UX2-UX1)
-1.6 3.5 Average
5.0
-1.4 3.0

-1.2 2.5
4.0
VIX/SPX Beta
VVIX/VIX Beta

-1.0
Spread

2.0
3.0 -0.8
1.5
-0.6
2.0 1.0
-0.4
0.5
-0.2
1.0 VIX/VVIX spot/vol beta (left axis)
0.0 0.0
SPX/VIX spot/vol beta (right axis; reverse order)
0.0 0.2 -0.5
Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Source: Cboe Source: Cboe

VIX Implied vs. Realized Volatility (1M) VIX Skew (1M 25-Delta Ratio)
140 1.9

120 1.8
Volatility (%)

100 1.7
Skew (Ratio)

80 1.6

60 1.5

40 1.4

20 1.3
VVIX Index VIX 1M Realized Vol VIX 1M skew (25D call/put ratio)
1.2
0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Source: Cboe Source: Cboe

Mandy Xu, VP, Head of Derivatives Market Intelligence

mxu@cboe.com © 2023 Cboe Exchange, Inc. All Rights Reserved.
 Macro Volatility Digest
January 22, 2024

US Index Volatility

ATM Implied Volatility (3M) Relative Vol Spreads (vs. SPX)

30 10

25
6

Vol Spread (%)

Volatility (%)

4
20
2

0
15
-2

10 -4
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23

SPX RTY QQQ RTY-SPX QQQ-SPX MXEF-SPX

Source: Cboe Source: Cboe

Skew (3M 25-Delta Spread) Term Structure (1Y-1M)

10 8

6
8
Vol Spread (%) 4
Skew (%)

6
2

4
0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
2 -2

-4
0
Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
-6
SPX RTY QQQ
SPX RTY QQQ
Source: Cboe Source: Cboe

SPX Cross-Sectional Skew (3M) RTY Cross-Sectional Skew (3M)

45% 50%

40% Range (1Y) Average Current 45% Range (1Y) Average Current

35% 40%

30% 35%
Volatility

Volatility

25% 30%

20% 25%

15% 20%

10% 15%

5% 10%
70% 80% 90% 100% 110% 120% 130% 70% 80% 90% 100% 110% 120% 130%
Strikes Strikes
Source: Cboe Source: Cboe

SPX Cross-Sectional Term Structure RTY Cross-Sectional Term Structure

30% 35%
Range (1Y) Average Current Range (1Y) Average Current

25% 30%

20% 25%
Volatility
Volatility

15% 20%

10% 15%

5% 10%
1M 2M 3M 6M 1Y 2Y 1M 2M 3M 6M 1Y 2Y
Maturity Maturity
Source: Cboe Source: Cboe

Mandy Xu, VP, Head of Derivatives Market Intelligence

mxu@cboe.com © 2023 Cboe Exchange, Inc. All Rights Reserved.
 Macro Volatility Digest
January 22, 2024

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Mandy Xu, VP, Head of Derivatives Market Intelligence

mxu@cboe.com © 2023 Cboe Exchange, Inc. All Rights Reserved.