Friday, March 27th 2020
Reuters Article On Fear Measures: Volatility, Skew and Bid-Ask Spreads with Matt Amberson
Fear measures from the options markets, implied volatility, bid-ask spreads, and put-call strike slope hit a high last week and are coming off but are still elevated.
The fear measures from the options markets, including implied volatility, bid-ask spreads, and put-call strike slope, hit a high last week and are coming off but still elevated. Realized volatility on the S&P 500 was at 97.4% on Friday, according to data from options analytics provider Trade Alert. Other measures, however, signal that some investors believe the selling may have already peaked.
As we showed in our blog back in mid-March https://blog.orats.com/extreme-fear.-is-this-the-bottom-charting-the-virus-with-options-data, measures of panic and capitulation hit a crescendo. These data points are backing off but not too quickly.
It may take months for the VIX to ease back to its usual levels, said Matt Amberson, principal at ORATS.
Realized volatility on the S&P 500 .SPX - a measure of actual moves on the index over the past 30 days - was at 97.4% on Friday, according to data from options analytics provider Trade Alert. By comparison, the VIX does not seem so high.
“Vol is very fair given the kind of moves that we’re having,” said Henry Schwartz, founder of Trade Alert.
Other measures, however, signal that some investors believe the selling may have already peaked.
For options on the SPDR S&P 500 ETF Trust (SPY.P), implied volatility, bid-ask spreads and skew have all drifted lower after surpassing 2008 levels last week, Amberson said.
Implied volatility reflects investor expectations for market gyrations over the next month. The bid-ask spread is the gap between what sellers say they want to receive for securities and what buyers say they will pay. Skew measures the demand for puts, used to protect against downward moves, in comparison to calls, used to position for upside.
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