VOL REPORT: 'Spot Down, Vol Down' as Investors Monetize Hedges Equity volatility declined last week despite a drop in the SPX® Index, marking an unusual "spot down, vol down" trend. The VIX® Index fell by 2.3 points week-over-week to 27%, contrary to expectations of a 2.0-point rise based on the SPX’s 1.6% decline. Analysts attribute this shift to a combination of lower fixed strike volatility and reduced demand for hedges, with the latter contributing -5.0 points to the VIX Index. Investors appear to have capitalized on their hedges, leading to a significant decrease in volatility. This change in market positioning is also reflected in the flattening of SPX skew, particularly put skew. The 1M put skew (25D/50D ratio) dropped from a one-year high to a 35th percentile low, signaling diminished demand for protective hedges. The move underscores a broader trend of investors monetizing their hedges, which has driven down volatility. In contrast, credit volatility has surged, with the VIXIG Index nearly tripling from its January low. This spike follows increased geopolitical tensions and concerns over private credit, which have eroded confidence in the broader U.S. economy. Credit volatility, which had previously been the cheapest cross-asset volatility, now stands at elevated levels, reflecting heightened risk aversion. Meanwhile, oil volatility has reached record highs, with the OVX Index rising 15 points last week to 120%. This marks the highest level since the 2020 pandemic period, when oil prices briefly turned negative. Despite erratic price movements due to shifting headlines, positioning in the oil options market remains bullish, with call demand far exceeding put demand. This suggests persistent fears of sustained supply disruptions in the energy sector.#vix_index #spx_index #vixig_index #ovx_index #spx_skew
