Article / 30 May 2016 at 15:10 GMT

Volatility Update: Markets on the brink

Product Manager, Options Trader, Educator
  • EuroStoxx 50 last week's biggest winner with 4.25% gain
  • US indices also finish strong with Nasdaq gaining 3.5%
  • Traders appear to be ignoring the VIX index

Last week saw equities rise yet higher, but are traders living on the edge? Photo: iStock 

By Georgio Stoev

Short report today as US markets are closed in observation of Memorial Day. For the week May 23-27, major indices extended their gains to close near multi-month highs. 

The biggest winner was the EuroStoxx 50, driven largely by shares of automakers. It finished up 4.25%. 

Euro Stoxx 50

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Source: Saxo Bank 

US indices also registered a strong week with the tech-heavy Nasdaq (QQQ) finishing 3.5% in the black. 

We were surprised by the blue-chip Dow Jones making a recovery of 2%, led by interest-sensitive stocks like Goldman Sach's (GS) and Home Depot (HD).

GS daily
Source: Saxo Bank 

Amidst the rally in equities, the CBOE fear index (VIX) has largely been ignored by traders. Are they not expecting any volatility over the next 30 days? 

We will find out. 

Be flexible, either way. A word about  As of last Friday, the put-to-call ratio is showing more activity on the put side for the S&P 500 index.

We will provide some additional insight including strategies in this market tomorrow. 

— Edited by Michael McKenna

Georgio Stoev is futures and options product manager at Saxo Bank 
fxtime fxtime
yeah I mentioned before that the VIX is too low on we have a major tail risk event (Tuesday?).....I never like to long the vix as I find it can be a very corrosive trade and prefer to look to short when it is greater than 28 but are you planning to make a very near term spread trade on it? (eg OTM straddle/strangle or near dated calendar?? ). I am intrigued to what you will do with the vix however. Good articles from the option team BTW.
Georgio Stoev Georgio Stoev
Thx FX time. shorting VIX futures maybe one way to play the low vol:).
fxtime fxtime
I would only short it above 28 though !! Trading the extreme end of the vol curve is often safer imho...interesting on your earlier iron condor comments that what you intend to do?
Georgio Stoev Georgio Stoev
Meant short the VIX futures, if stock market is to rise then we'd expect the futures premium to decline.
ICs is not the preferred strategy here as premiums are low. Id like to get .30 cent on $1 width which is hard to do obtain today. OTM calendar spread would be a possible strategy to benefit from + theta/vega.
Georgio Stoev Georgio Stoev
Converse if we want to hedge a portfolio- vertical put spread or back ratio.
fxtime fxtime
Yeah understood...thx.


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