VIX May Retreat Below 20 Following U.S. Payrolls Report Tomorrow, MKM Says
The benchmark for U.S. stock options may fall below 20 for the first time in four months even after a “lackluster” report tomorrow that may show that the labor market is “recovering sluggishly,” MKM Partners LP said.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, is likely to drop below its 20.4 average from the past two decades, Stamford, Connecticut-based options strategist Jim Strugger wrote in a note to clients today. The gauge has fallen by almost half since this year’s peak in May.
“Equity markets may finally have the necessary mindset to look beyond the double-dip concerns and begin to price in what we believe is the more likely outcome of a moderate economic recovery,” he wrote. “We continue to expect spot VIX to descend through its long-term mean just above 20, which would mark the end of the current aftershock.”
The Standard & Poor’s 500 Index surged the most since July yesterday after reports showed U.S. and Chinese manufacturing expanded faster than economists forecast, alleviating concern among investors that the global recovery is sputtering. U.S. private payrolls that exclude government agencies rose by 42,000 this month after a 71,000 July gain, while the unemployment rate rose to 9.6 percent, according to the median estimate of economists surveyed by Bloomberg News before tomorrow’s report.
The VIX rose less than 0.1 percent to 23.90 at 10:18 a.m. New York time. The index measures the cost of using options as insurance against declines in the S&P 500, which climbed 0.2 percent.
“If we move through 20, that ends this aftershock, meaning that we move toward the long-term trough in the 15 to 18 range over the next couple months,” Strugger said in an interview.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
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