Record High for S&P 500 Index and Higher Volatility

Deals, more deals, higher prices for the latest deal or corporate willingness to step-up and make strategic acquisitions are all reasons helping deliver a stellar start to the week. For investors that means a swift return to confidence on Monday helping drive the S&P 500 index to a new record high. And as welcome as new highs may be, the chart below captures growing suspicion even as investors raise the roof. The CBOE Vix index at 14.02 is lower to start the week, yet remains above where it traded when stocks peaked in January (12.28) and the week after the Thanksgiving break (13.70).

Chart – New heights, VIX stays relatively firm

(click to enlarge)

Some of investors’ suspicions are well founded. The emerging market drama, accompanied by episodes of fear ranging from Fed tapering and a Chinese slowdown, remains a concern and earlier in the month forced the Vix to as high as 21.44 on fears of outright panic. Yet it seems that investors are coming to terms with the policy path of the Fed under its new leadership, which in turn is maintaining a lid on treasury yields.

January and the earlier part of February saw options volumes soar across the exchanges as investors bought protection to defend against portfolio losses during days when markets remained highly correlated. And as that correlation comes away the price of both speculation and protection is fading. That’s actually not a bad thing for ardent bulls and resolute bears. For the bulls the spring time might yet see the economy snap back quickly as the spring arrives and help further the bull market. While for bears frustrated by the lack of follow-through when correlations surge, preparing for the next lunge is still inexpensive – just not as cheap as before. Maybe we really are getting back to normal.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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