ChartBrief 118 – Volatility Bets Hanging On

ChartBrief 118 – Volatility Bets Hanging On

As equity market implied volatility grinds lower it’s worth throwing a couple more charts into the mix. In this post we look at ETF bets on the VIX and cross-asset volatility. ETF market bets on the VIX are hanging on despite the headwinds that such products face, it goes to show there are still holdouts despite the continued grind-down in implied volatility. And it’s not just equity market volatility that’s compressing, our measure of implied volatility across asset classes is also falling.

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It's almost a certainty that volatility will rise, it's really just an issue of timing. The ETF products that go into the chart below provide a lottery ticket type bet in that a spike in the VIX has the potential to return massive and rapid profits, but the deck is stacked squarely against these products with the return since inception for most long-VIX ETFs often printing at around -99%. They can be useful tactical/dynamic hedges, and given the rising risk of a correction there's probably some case for more diligent risk management now. Just be careful what you wish for, and how you wish for it!

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ETF market bets on the VIX are hanging in there as new money flows in to take the place of the value eroded by the futures roll costs and indeed the falling VIX itself.

Implied volatility has broadly compressed across asset classes. Our gauge of cross-asset implied volatility measures IV for bonds, currencies, and commodities.

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Volatility Bets Hanging On

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Article by Callum Thomas, Top Down Charts

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.

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