VIX Hits One Month Low as Wall Street Rebound Triggers 32% Implied Volatility Crush

CBOE VIX Volatility Index Futures (VIX) are trading 0.5% lower today, reaching levels last seen on February 27. The past two weeks have brought intense pressure on traders and institutions hedging against further volatility (fear) in the U.S. equity market. Today US500 and US100 are up almost 0.4%.

• The drop in VIX did not accelerated after Friday’s options and futures expiration (Triple Witching Day), however the drop from March 11 until now is almost 32% (26.5 to 17.88). Currently, demand for hedging—following the steepest equity declines in several quarters—appears to be fading, giving way to a bullish trend supported by narratives around easing U.S. trade tariffs, lower inflation data, and the Federal Reserve’s stance to begin scaling back Quantitative Tightening (QT) from August.
• U.S. stock indices have recovered part of their recent losses — the Nasdaq 100 is down about 3.5% year-to-date, while the S&P 500 has lost just under 1.8%. This rebound followed both benchmarks entering technical correction territory, having dropped nearly 10% from their highs. It seems that, at least until new concerns emerge, a further “VIX crush” is likely, and market momentum could lead to another “nonstandard” move lower in implied volatility — before any potential rebound in the index.
• A potential catalyst for renewed fear could be an escalation of tensions with Iran, which might trigger a spike in oil prices and worsen inflation expectations. Talks between Israeli and U.S. officials have begun today. The Israeli delegation reportedly does not believe economic sanctions alone will halt Tehran’s nuclear program and has persuaded former President Trump to set a two-month deadline for Iran to sign a nuclear agreement. After that (early May), military measures by the U.S. and Israel cannot be ruled out.

Of course, before then, we’ll also see more quarterly earnings reports from major U.S. companies.

Source: xStation5

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