CHART OF THE DAY: Why Investors Should Closely Monitor Volatility

If you don’t know what delta-hedging is, look it up. If you’re running “market neutral”, that’s what you do. The constant “re-hedging” of these portfolios perpetuates The Machine’s relevance like never before.

Need a basic example?

1. AFTER the SP500 goes down for 4 days in a row…
2. IMPLIED VOLATILITY has already ripped in kind

To put some context around these moves:

1. At the close of trading on SEP 20^th, 2018, IMPLIED volatility (vs. 30-day REALIZED) for the SP500 dropped to +14%
2. The SEP 20^th closing price of the SP500 was the ALL-TIME HIGH
3. As of last night, the SP500’s IMPLIED VOLATILITY (vs. 30-day realized) ripped to +117%

For those who “feel” something AFTER market moves (i.e. the market felt “great” on SEP 20^th and “omg” on yesterday’s close), whatever you feel equated to a 3.0 standard deviation move in volatility expectations vs. the last 12 months.