SPX futures are up roughly 7 points to 1882. Yesterday, the FOMC kept rates unchanged all the while admitting tighter financial conditions and international risk. Goldman analysts expect a rate hike in March. As we noted last week, Goldman also expects weak but not recessionary economic data for 2016 and a VIX in the low 20’s. Facebook (FB) earned more than $1 billion in quarterly profits for the first time and the positive equity futures are feeding off that. The cash VIX finished 23.11 yesterday, up .61 on an up and down day. The VIX futures are all lower this morning by .2 on average given the positive equity tone.
The Russell 2000 is sitting roughly 23% below its 2015 record highs while the S&P 500 has only lost 12%. This is pretty typical as smaller capitalized Russell names generally are more prone to economic trouble than the more established larger caps. When the overall market comes under strong selling pressure, it’s common to see the Russell 2000 implied volatility spike to a greater degree than the S&P 500. In other words, the cost of options to hedge small caps outpaces that of the large caps. Surprisingly, during the equity sell-off last August we saw an anomaly that rarely happens.. specifically that S&P implied volatility actually spiked higher than Russell IV. You can see that in the graph below, as well as the much more common relationship demonstrated today (IWM IV >> SPY IV). With respect to the last year, the 1M IV spread between the two recently ballooned to a high of 5.41 vol points one week ago. The 4.82 spread presently sits in the top 1% of 1YR readings.
Bloomberg has a nice function ( VCA ) that lets you drill down into the specific sector ETFs from an implied volatility standpoint. The function allows you to compare the various market sectors: implieds v realized, correlation, skew, etc. Taking a quick look shows that all sectors have 3M IV sitting in the top 5% of 3YR readings (save utilities). The same holds for the 1M expiry. Three-month sector skew is in the top 10% of 3YR readings for: consumer staples, consumer discretionary, financials, health care, and industrials.