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Mid-Week Market Updates: Volatility Trends & Options Outlook

Mid-Week Market Updates: Volatility Trends & Options Outlook

Christopher Vecchio, CFA, Senior Strategist
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MID-WEEK MARKETS UPDATE OVERVIEW:

  • The VIX works by tracking the underlying price of S&P 500 options – not the stock market itself.
  • VIX-linked instruments tend to have a strong negative correlation with US stocks.
  • When you take a short position on the VIX, you are essentially expecting that the S&P 500 is going to rise in value.

Stocks, Oil Prices Look Strong

Understanding volatility and using various measures of price movement are an important skillset for traders to incorporate into their analytical toolbox. In this Mid-Week Markets Update, we examine the relationship between volatility and US stocks, energy markets, and precious metals in order to gain a deeper perspective on emerging trends across markets.

The drop in the VIX in October has coincided with the US S&P 500 breaking its multi-week downtrend, putting US stock markets on track to retest their all-time highs established earlier this year. Elsewhere, with gold volatility remaining low, and cryptocurrency markets faring well, the environment for gold prices remains difficult in the near-term.

Meanwhile, the flip in correlation between crude oil prices and oil volatility is a potential warning sign that the recent rally is overextended, with previous episodes of positive correlation signaling near-term market tops over the past year.

For full commentary on the US S&P 500, crude oil prices, and gold prices, please watch the archive of this week’s Mid-Week Market Updates session held on Wednesday, October 20.

CHARTS OF THE WEEK

US S&P 500 TECHNICAL ANALYSIS: DAILY CHART (October 2020 TO October 2021) (CHART 1)

Mid-Week Market Updates: Volatility Trends & Options Outlook

GOLD PRICE TECHNICAL ANALYSIS: DAILY CHART (May 2020 TO October 2021) (CHART 2)

Mid-Week Market Updates: Volatility Trends & Options Outlook

CRUDE OIL PRICE TECHNICAL ANALYSIS: DAILY CHART (October 2020 TO October 2021) (CHART 3)

Mid-Week Market Updates: Volatility Trends & Options Outlook

--- Written by Christopher Vecchio, CFA, Senior Strategist

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES