This Week in Vol: Bond Vol Stayed

Watch first

We are posting far more often now. Last week the Fed decision went out live on YouTube, and the daily Today in Vol recaps and the short lessons are running on TikTok. YouTube is where the longer pieces go, and this coming week the put/call parity video goes up there. It shows why a call and a put at the same strike are the same trade wearing different labels, and why that matters every time you read a chain. Follow along at youtube.com/@apex_vol and leave a comment under any video with the topic you want covered next. The comments set the queue.

The vol snapshot

The Fed raised by a quarter point on Wednesday and equity vol treated the meeting as the end of a question. The VIX closed 17.71 on decision day and 14.81 on Friday, down 1.03 on the week. One month SPY implied vol is 11.3, the 4th percentile of its past year, against 8.7 realized over the past month. IWM sits in the 2nd percentile and QQQ in the 7th. The front of the SPY curve runs from 6.5 vol for Monday to 10.0 for Friday, with nothing on it that looks like an event.

Bond vol did not follow. The MOVE index closed Friday at 80.6, down 1.6 on the week but nearly 10 points above where it stood three weeks ago, which works out to roughly 5.1 basis points of implied daily movement in Treasury yields. The ten year finished at 5.00%, up 2 basis points on the week and 28 over three weeks. The thirty year closed at 5.33%. TLT one month implied vol is 11.1, the 70th percentile of its year, against 10.0 realized.

Put those two together and you get the story of the week. TLT and SPY carry almost the same one month implied vol, 11.1 and 11.3. For the bond fund that number is the 70th percentile of its year. For the index it is the 4th. Same price, two different years behind it. The stock market has decided the hike settled things and the bond market is still charging for the next one.

Movers

• VLO, MPC and PSX. One month IV of 51.4, 50.2 and 41.5, all in the 99th percentile of their year, with the stocks up 13 to 19% on the month. Refiner vol makes this list for a fourth straight week. The Valero October 430 call from two issues ago is now well inside the money, with the stock at 413.
• META. One month IV 38.0, the 87th percentile of its year, and the only mega cap carrying elevated vol into a quiet week. Everything around it sits near a low.
• NVDA, AVGO and MU. NVDA one month IV is 31.2, its lowest reading of the past year, with an IV rank of zero. AVGO is in the 1st percentile of its year and MU in the 3rd. The whole semiconductor complex is priced for nothing to happen.

The week ahead

Six names with confirmed timings report this week. Three of them, AutoZone, General Mills and Paychex, were already in last week's table and still price above their own history. Costco is the big one, Thursday after the close, priced at 0.84 times its twelve report average.

Implied move is what options price for the report itself. Realized average is the average absolute move across the last twelve reports, measured close to close, using the next session close for reports after the bell and the same day close for premarket reports.

Last week's one result came in quiet. Lennar was priced at 4.5% and closed up 1.7% the next day, inside the straddle. The AutoZone, General Mills and Paychex rows are the rest of that table, so all three results will be in next week's issue.

One vol concept: put/call parity

A call and a put at the same strike and expiry are linked by one equation. Buy the call, sell the put, and you own the stock from that strike onward, financed until expiry. So the call price minus the put price has to equal the stock price minus the strike, adjusted for interest and any dividend. Two things follow. The call and the put at a strike must trade at the same implied vol, which is why "puts are more expensive than calls" is always a statement about different strikes. And when the equation does look broken, the gap is a borrow cost or a dividend, not a market opinion. The video this week walks through it on a live chain.

One terminal tip

Open the IV Rank module on TLT, then switch it to SPY. The two levels are almost identical and the two percentiles are forty places apart, which is the whole snapshot above in one screen. Free 7 day trial.

Six results next week, plus the parity video. Tell me in the comments what you want after it.

Ryan

Educational content, not investment advice.