Traders noted only a slight pickup in vol buying in response to a spike last week, which they said suggests most players do not believe the volatility environment is turning around. A sharp fall in stock markets, connected to concern over global interest-rate rises, led one-month implied volatility on the Euro STOXX 50 to jump to 18.74% Wednesday, from 16.52% Tuesday. One flow salesman said volatility trading is not as quiet as it was six months ago, but there has not been a noticeable increase in vol buying, in spite of the jump.
"I would say that this uptick was quite predictable," added a senior volatility trader at a European house, explaining the lack of buying. He noted some people were caught short so there was some buying on the way up earlier in the week, but most players seemed to attribute the rise in volatility wholly to the stock markets' troubles, he said, rather than the market entering a new volatility phase. Last week's limited buying interest was focused on one-month or shorter dates, which also suggests the street is not convinced of a longer-term vol rise, he added.
