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The S&P 500 fell by roughly 60 basis points today, but the volatility complex behaved as if the market had plunged much more sharply. The VIX-1D surged nearly 40% to 23.7 — implying a 1.5% expected move for tomorrow when divided by the rule of 16 — yet that magnitude wasn’t reflected in the index itself
Beneath the surface, volatility measures exploded: the implied correlation index rose 45% on the 1-month to 19 and 25% on the 3-month to 21, while dispersion stayed relatively mild. The Left Tail Index jumped to 17.5, signaling heightened demand for downside protection.
This combination — elevated implied correlations and muted dispersion — often reflects broad-based hedging rather than single-stock panic, suggesting that investors are positioning defensively across the board. The weakness in regional and money-center banks, along with Bitcoin’s breakdown, reinforces the idea that stress is spreading through liquidity-sensitive corners of the market, even if the S&P itself hasn’t yet reflected it.
It probably doesn’t help that SOFR printed at 4.29% today, and the avearge repo rate today won’t allievate pressure tomorrow, trading at 4.3%, down from 4.32%. There was a good amound of transcation volume as reported by DTCC
The standing repo facility rose to over $8 billion today as well, suggesting that funding stress, appear to be increasing.
The CDX HY index also rose rather notably today, certainly more than what the drop in the S&P 500 would have suggets.
Meanwhile, weakness in the regional banks and private equity continued. My guess is that the QYLD ETF, which we don’t really talk about much anymore, was unwinding its covered call position at the 24,525 strike for October 17, which may have contributed to today’s unusual activity, and may have even caused that nearly $2 billion buy imbalance on the SPX. Tomorrow, they’ll likely write a new call, which should create stock for sale.
-Mike
Glossary by ChatGPT
Basis Point (bps): One hundredth of a percentage point, or 0.01%.
CDX HY Index: A credit default swap index tracking high-yield corporate bonds.
Covered Call: An options strategy where an investor sells call options against a long position in the underlying asset.
Dispersion: The degree of variation among individual stock movements within an index.
DTCC (Depository Trust & Clearing Corporation): A financial services firm that provides clearing and settlement services for securities transactions.
Implied Correlation Index: A measure of how closely individual stock volatilities are expected to move together.
Left Tail Index: A measure reflecting demand for downside protection or put options, capturing tail-risk hedging.
Money-Center Banks: Large banks that conduct extensive business in national and international markets.
Repo Rate: The interest rate charged on short-term borrowing through repurchase agreements.
SOFR (Secured Overnight Financing Rate): A benchmark interest rate based on overnight borrowing costs collateralized by U.S. Treasury securities.
Standing Repo Facility: A Federal Reserve program that provides short-term liquidity to eligible counterparties through repurchase agreements.
VIX-1D: A one-day volatility index measuring expected near-term market swings.
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