A Dive Into Near Term S&P 500 Implied Volatility: Looking At How The Markets Are Pricing Upside And Downside Risk
Portfolio Pulse from Dara Akhavein
The SPDR S&P 500 ETF Trust (NYSE:SPY) is experiencing historically low levels of relative volatility, ranking in the bottom 3 percentile for relative historical volatility over the past twelve months. However, near-term Implied Volatility (IV) term structure reveals elevated volatility levels for contracts expiring on 9/14/2023, and backwardation properties for the 9/17/2023 expiry. The volatility smile for SPY options expiring on 9/14/2023 and 9/18/2023 shows a disparity between implied volatility for calls and puts, indicating a demand for downside risk protection.
September 13, 2023 | 8:04 pm
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NEUTRAL IMPACT
SPY is experiencing low relative volatility but near-term IV shows elevated levels. Disparity in call and put IV indicates a demand for downside risk protection.
The low relative volatility indicates a stable market for SPY. However, the elevated near-term IV and the disparity between call and put IV, particularly for contracts expiring on 9/14/2023 and 9/18/2023, suggest that investors are pricing in potential downside risks. This could lead to increased hedging activity and could impact the price of SPY in the short term.
CONFIDENCE 90
IMPORTANCE 75
RELEVANCE 100