Mike Khouw on Rising Volatility and Options Market Signals

Volatility Index (VIX) Insights

• 📊 The VIX is a 30-day look ahead at implied volatility for the S&P 500, but current readings may be skewed by upcoming holidays and trading days.
• 💡 Adjusting for holidays, the true measure of the VIX might be closer to 18.5 to 19.

Options Market Activity

• 📈 Options expiring at the end of January show that out-of-the-money puts and calls have increased more than at-the-money options.
• ⚠️ This suggests options prices are anticipating more choppiness than experienced in the last six months, potentially due to rolloff in hot performing sectors.

Market Sentiment and Future Outlook

• 🧠 While the surface appears calm, the increased activity in the 'wings' of options indicates an increased alertness for significant market events.
• 🧐 There's a sense of 'gurgling under the surface,' with some holiday indigestion showing up early, possibly linked to macroeconomic uncertainties.

Macroeconomic Uncertainties and Options Pricing

• ⚡ The options market is likely reflecting concerns about macroeconomic uncertainties, such as potential presidential announcements regarding Venezuela.
• 📉 Such events can lead to a knee-jerk reaction in risk assets, elevating prices for broad-based index options like the S&P 500.