UBS Equities-US Equity Derivatives Strategy _Down to earth Is the record...-109864147(1)

ab15August2024GlobalResearchandEvidenceLabUSEquityDerivativesStrategyDowntoearth:IstherecordspeedofVIXretracementtoofar,toofast?Andtheawardgoesto...:VIX,nowbreakingtworecordsinthelastweek+alone[Figures1-6]VIXhasnowachievedtworecordsoverthelastweek–Thefastest25+pt.spikefromlows,andnowthefastestretracementfromthatspikeever.Lastweek'srecordVIXspikewaseasilyexplainedawaybyanumberoffactors–seeBlackMonday2:Returnofthevol.Ourtakeontheswiftlevelofretracement,asfollows:1.Volatilityismean-reverting:VIXisamean-revertingindex,andshouldultimatelyfadeaspikeattheendoftheday(orweek,rather...).OurVIXhalflifemodelsuggested10-15tradingdays(~2-3weeks);Wegottherein6.2.Volatilityhasmemory:Similartothedegreeofthespike,thespeedofmeanreversionappearstoofar,toofastwhenwelooktowardshistory.WeanticipatedacoolingCPItotakesomewindoutoftheVIXsails,buttherearestillaftershockswhenVIXspikestosuchadegree,especiallyifrecessionisstillpotentiallyonthetable.3.VIXspikewastechnically-driven:LastMonday'sspikewasmuchmoretechnicalinnature,aswesuggested–ExacerbatedbyfactorslikepoorliquidityinSPXoptionspre-marketanddealerhedgingactivityinVIXcalloptionality,whichhavenowlikelybeenmonetized.4.Dispersiontraderemainsintact:WenotedthatMomentumhadbarelyrolledoverandcorrelationshadonlymoderatelypickedupfromthezero-bounddespitetherout–Itappearsoneofthemostcro...