Single Stock Volatility Jumps Higher as Earnings Approach

Link to Report: Macro Volatility Digest

WHAT STANDS OUT:

• Implied volatilities were mixed across asset classes last week as risk of looming government shutdown weighed on sentiment despite better-than-expected economic data. Gold skew inverted further as demand for upside calls picked up, with 1M skew (25-delta ratio) falling to near a 1-year low. As focus shifts to this week’s NFP number, what stands out is how little is priced into the event, with SPX® weekly options implying just 0.9% move for Friday (vs. average realized move of 1.6% this year for NFP).
• As we approach earnings, single stock vols have picked up notably relative to the index. For example, the VIXEQ^SM index (weighted average single stock vol) is up ~4.5 vol pts in the last two weeks versus VIX® index up 0.5 pt. The spread between the two is now near a YTD high of 20 pts (see below). The bid to single stock vol is largely driven by the mega-caps (TLSA, AMZN, and META being the 3 largest contributors).
• Demand for protection picked up last week, driven by year-end hedging, with 3M skew rising the most versus other tenors. SPX 3M skew steepened from the 40^th percentile low to the 70^th percentile high (versus other tenors where skew is still trading ~50^th percentile).

Chart: Single Stock vs. SPX Index Volatility Spread Widens to Near YTD High

^{Source: Cboe}

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