Article / 27 June 2016 at 11:58 GMT

Volatility update: Stocks hammered as fear returns

Product Manager Futures and Options / Saxo Bank
  • VIX expanded by more than 40%
  • Record volumes at CME, BATS and the CBOE
  • VIX could test this year's high of $32
The Brexit decision triggered turmoil in global markets. Photo: iStock 

By Georgio Stoev

Fear has swept markets in the wake of the British decision to quit the European Union. Investors sold the news (facts), pushing global indices down to one-month lows. Among the hardest hit is sterling which has fallen some 10% against the dollar. 

At the same time, the CBOE Volatility Index (VIX) expanded more than 40%. During Friday's session the index traded in a wide range with a high of 26.24 and low of 19.48. Demand came from all sides – hedgers, speculators and so on. This elevated volatility sparked renewed interest in volatility products, both options and futures. Record volumes were recorded by some of the largest exchange operators such as CME, BATS and the CBOE.

VIx elevated
 Source: SaxoTraderGO

We could certainly see more volatility ahead as fianancial markets assess the Brexit damage. The VIX could test this year's high of $32 and beyond, especially as the US earnings season is about to kick off. Watch the webinar on how to trade around earnings (click here). 

Slippery slope for equities

We have been cautious for the last month in equities, particularly the banks.

On Friday, the financial sector ETF (XLF) was off by 5.3% and we expect pressure to be renewed this week. We believe tha the April low of $21.97 will not hold on the backdrop of bond yields dropping. Investors could look at a bear call spread using August expiration.

Consumer descritionary (XLY) is also another spot of possible weakness. The sector is led by companies such as Amazon, Home Depot and other mostly retail and services companies. We have an existing bear put trade using the standard July expiration (79/77). The trade is still valid and could be adjusted to August 77/75 puts. 

The week ahead

It's a huge week for economic annoucements. Tuesday brings a couple of data releases from the US, including the Shiller House Index (expected to add +0.8) and the consumer confidence index (expected at 93.2). Also on the agenda are employment numbers from the US and Germany, weekly oil stocks and Japan's  CPI. The full calendar can be seen here

– Edited by Clare MacCarthy


Georgio Stoev is futures and options product manager at Saxo Bank 

27 June
fxtime fxtime
The VIX at 28 - 30 range will be the ideal range for me to short near dated as I suspect we will see some calm by the end of the week :-)
28 June
Georgio Stoev Georgio Stoev
It's a good range to sell.
28 June
Market Predator Market Predator
Maybe we're already out of woods, but nice reading anyway (VIX at before-Brexit level). To spread index into sectors and analyse one by one in comparative chart is great tool. Thx. Mr. Stoev!


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