Derivs - Equity

Last month we noted that market-based measures of implied volatility had fallen considerably as Chinese indexes stabilised, developed market equities moved toward recent highs and commodity selloffs were contained. Two weeks later, we find that volatility risk premiums have fallen further in most cases, as traders price in less risk during a seasonally quiet period.

Increasing volatility correlation across different asset classes could be an early warning sign of a financial crisis, some investors and strategists have warned, even though options prices have yet to convey any panic.

The Chicago Board Options Exchange has introduced 10 equity option strategy indices to the investment world, with intra-day valuation.

With earnings season in the US continuing, the volatility surface for some individual equities has begun to show signs of elevated interest despite muted index activity.

It is with great pleasure that GlobalCapital announces the nominees for its Global Derivatives Awards 2015. The winners will be unveiled at a gala dinner in London on September 24.

Despite earnings season confirming the worst for energy companies and some having announced major write downs, US equity volatility is yet to stir.

Earlier in July, every market tracked in our recurring indicator of option implied volatility showed pricing at above-average levels. US and European large-cap stocks had short term put options priced more than two standard deviations above their average levels. Hang Sang Index options were five standard deviations higher: as mainland investors discovered the sell button and margin calls rolled in, both A- and H-shares briefly gave back all of their gains year-to-date.

After the recent spike on Grexit fears and a crash for Chinese equities, implied volatility levels for US stocks have fallen back to earth with stunning speed, say traders.

The sell-off in Chinese equities has caused a fundamental shift in investor expectations for the future distribution of returns in A-shares.

For all the panic in markets that Greece and the Chinese stock plunge have caused, investors are not piling into traditional safe haven, gold.

Despite the mounting uncertainty over the future of the euro and Greece’s membership of it, US markets have so far taken the weekend’s Greek referendum result in their stride.

Options markets for single stocks in the US are indicating higher implied volatility in advance of earnings announcements starting this week.