Q2 STOCKS TO BUY

SPY Volatility in the Peak of Anxiety-Inducing Events

A deeper look into SPX historical volatility amid a monumental week

Editor-in-Chief
Nov 6, 2020 at 12:36 PM
facebook X logo linkedin


As we stand just days away from possibly the most nail-biting election in modern U.S. history (also one that happens to be during a global pandemic), it seemed to be wise to widen the scope and dive into a broader perspective on market performance. This rhetoric is offered up every presidential cycle, but in this case, its’ impact seem on par with the hyperbole. Thus, it seemed to be wise to widen the scope and dive into a broader perspective on market performance. Specifically, to try and keep things as "simple" as possible, I thought it would be interesting to approach implied volatility (IV), and it’s ever-changing relationship with the SPDR S&P 500 ETF Trust (SPY), but this time through the lens of the chaotic events of 2020. With help from data pulled by Senior Market Strategist Chris Prybal, we will map out what patterns and/or peaks we’ve exhibited from IV, including where percentages stood pre-COVID-19 peak, during the peak, amid the summer apex, and now, as we enter another wave and zero in on a historic election.

First off, why implied volatility over historical volatility (HV)? Implied volatility is the market’s perception of volatility at present moment. Whereas HV is based off the math from the preceding period of time, whether 10 days, 21 days, etc. While yes, some of the events we will be analyzing have already happened, we are also taking in the present and future events as well.

The below chart shows the SPY from January of this year, with the black line marking the ETF’s corresponding daily closing price, the red showing the put IV, and the green the call IV. Notably, before the coronavirus outbreak, put IV was around 20%. However, by the mid-March peak, implied volatility for puts hit 80%, a substantial surge. After retracing most of this move, SPY IV’s shot up once again to 40%, half most recent high, as the virus spread throughout the country in the so-called "second wave." Since then, IV’s has remained around the 30% level, but is now on its way upward.

biggercotw1

What about after the election? Should I anticipate increased volatility as another wave of COVID-19 infections approach? There is no straightforward answer. Below, we looked at SPY and volatility from an even wider lens; from the beginning of the last presidential election campaign season at the start of 2016, to now. Standing out most looks to be ominous lows in the implied volatility after the initial COVID-19 surge, which look roughly in-line with prior peaks from 2018.

New Cotw2

In terms of the impending election, volatility will most likely subside no matter who wins, or if it’s contested (though an initial pop before results is expected in this instance). Per Prybal, if former Vice President Joe Biden wins, implied volatility will subside. However, if President Donald Trump wins, IV may also see a fall.

It’s important to keep in mind that IV’s fluctuate, as they are known but not fixed. How prices fluctuate in the future is unknowable. This means that Cboe Market Volatility Index (VIX) is prone to spikes in anxious moments, so it becomes beneficial to use historical precedent to gauge the magnitude of the spike for present-day inquiries, as this belies the challenge of trading.

VIX SPX Futures Chart

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, November 1.

 
 

“Buy This Stock Now!” - Expert Who Called 11x On TSLA

He called a rare 11x on Tesla…

But now, thanks to Elon & Trump’s new alliance…

He says there’s a new opportunity that could be 1,000x BIGGER than Tesla – and it could completely revolutionize a $23 Trillion market.

It’s trading for less than $5 per share right now…

But it won’t be under the radar for long.

Discover The 1,000x Bigger Elon Opportunity Here

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

👀Learn How Dividends Create Passive Income for Life
Receive $200 Off Motley Fool Epic. The Motley Fool Epic $299 discounted offer is based on $499/year list price. Introductory promotion for new members only. Take control of your money and your portfolio with Motley Fool Epic.

💵New Income System Could Pay You $4,243 Monthly
You could collect an average of $4,243 per month starting as early as next week with a new payout system for income investors. New registrations are being accepted for investors who want to be in a position to start with their first payout next week.

🚀Easy 92% Crypto Dividends (No Coins Required)
COIN stock doesn't pay a dividend... But there's actually a new way to collect a massive dividend that's indirectly based on the stock and offers a terrific monthly income (currently yielding nearly 92% on a forward basis).

🤝Free Advisor Match with Wiseradvisor.com
Don't leave your retirement to chance! Get matched with a trusted financial expert for FREE and make the most of your tax refund. Get started now.

⚠️Dennis Quaid's #1 Warning for Americans
Here's the thing: life doesn't come with guarantees. The economy shifts, markets stumble, and years of hard work could slip through your fingers like sand. But it doesn't have to be that way for you. So request a free copy of this Gold & Silver Guide that will arrive right to your doorstep when you act now.

 

 
 

Follow us on X, Follow us on Twitter