Here’s a highlight from the November 17 issue of Volatility Tracker Plus, “Will Japan Repeat Itself? Steep US Term IV,” which is now available by subscription. In addition to bi-monthly trade ideas and market updates, we offer a 13-page, 4000-word guidebook and full archives access.
Cross asset volatility monitor
Developed market (ex-Japan) 2Y percentile ranks for 3M IV are all below 20%. Option premiums rose slightly for the week for the S&P 500 as well as in South Korea and China. IV rose more substantially in Japan even as the EWJ ETF rallied 4%. Realized volatility in Brazil has risen to 24%, but premiums fell closer in line as shares rebounded last week.
Option implied volatility on the euro has finally fallen to the lowest levels since 2007. We recently highlighted the unusual steepness in the term structure (“Fade Steep Contango As EUR/USD Ramps”, Oct. 22), and as expected, the curve has flattened since then from 82% for 3M/1Y options to a recent peak of more than 91% on Nov. 6.
The left half of the table above shows price levels and price changes over the past week and month for the major U.S. and international equity index ETFs and a sample of the most actively traded fixed income, currency, and commodity ETFs.
The right half shows levels and changes for three month implied volatility in those assets. Minimum and maximum values of 3M IV, two year percentile rank, and z-score values are all based on the last two years of data. The weekly change in 3M IV is measured in volatility points. Percentile ranks lower than 20% (higher than 80%) are highlighted in green (red), suggesting that implied volatility may be attractive to buy (sell). Z-scores are calculated as the difference between current 3M IV and two year 3M IV, divided by the standard deviation of two year 3M IV.