{"id":46445,"date":"2022-11-16T15:33:18","date_gmt":"2022-11-16T20:33:18","guid":{"rendered":"https:\/\/www.bloomberg.com\/professional\/insights\/trading\/metrics-in-equity-volatility-lack-stress-despite-uncertainty\/"},"modified":"2024-04-24T14:35:29","modified_gmt":"2024-04-24T18:35:29","slug":"metrics-in-equity-volatility-lack-stress-despite-uncertainty","status":"publish","type":[3762],"link":"https:\/\/www.bloomberg.com\/professional\/insights\/trading\/metrics-in-equity-volatility-lack-stress-despite-uncertainty\/","title":{"rendered":"Metrics in equity volatility lack stress despite uncertainty"},"content":{"rendered":"<div  class=\"bbg-row-container\">\n    <style>section[data-anchor=row-69fe10a679ce4]::before {\n\t\t\t\tbackground-color: #eeeeee;\n\t\t\t}<\/style>\n    <section class=\"bbg-row bg--custom-color  bg--eeeeee text--black bbg-row--full-bg-bleed\" data-anchor='row-69fe10a679ce4'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8 bbg-column--valign-bottom\"\n    style=\"\"\n    >\n    <p>    <ul class=\"bbg-categories_list\">\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/markets\/\" rel=\"category tag\">\n                    Markets\n                <\/a>\n            <\/li>\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/risk\/\" rel=\"category tag\">\n                    Risk\n                <\/a>\n            <\/li>\n                    <li>\n                <a href=\"https:\/\/www.bloomberg.com\/professional\/insights\/category\/trading\/\" rel=\"category tag\">\n                    Trading\n                <\/a>\n            <\/li>\n            <\/ul>\n<div\n    class=\"bbg-spacer\"\n        style=\"height: 24px !important\"\n    >\n<\/div>    <h1 class=\"bbg-metadata bbg-metadata--title\">Metrics in equity volatility lack stress despite uncertainty<\/h1>\n<\/p>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-compact row-padding--bottom-none bbg-row--full-bg-bleed\" data-anchor='row-69fe10a6806b9'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <p><div\n    class=\"bbg-spacer\"\n        style=\"height: 40px !important\"\n    >\n<\/div><div\n\tclass=\"bb-wysiwyg byline\"\n\t\t>\n\t<p><strong>Bloomberg Intelligence <\/strong><\/p>\n\n<\/div>\n    <p class=\"bbg-metadata bbg-metadata--date\">November 16, 2022<\/p>\n<\/p>\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <section class=\"bbg-row  text--black row-padding--top-none bbg-row--full-bg-bleed\" data-anchor='row-69fe10a682b06'>\n        \n        \n        <div\n            class=\"bbg-row--content\"\n                    >\n            \n            <p><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div><div\n    class=\"bbg-column bbg-column--width-8\"\n    style=\"\"\n    >\n    <p><div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<p><i><span style=\"font-weight: 400\">This analysis is by Bloomberg Intelligence Chief Global Derivatives Strategist Tanvir Sandhu. It appeared first on the Bloomberg Terminal. <\/span><\/i><\/p>\n<p>Equity volatility metrics, such as measures of skew and convexity, aren&#8217;t showing the same signs of stress as in other assets, despite the macro uncertainty. This dislocation can be explained by fall in the reactivity of volatility, given the grind lower in the market, preference for cash over convexity and lack of a shock factor.<\/p>\n\n<\/div>\n<div class=\"bbg-interstitial\" aria-label=\"interstitial\" tabindex=\"0\">\n\t<style>\n\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\tbackground:rgba(0,0,0,0);\n\t\t\tpadding: 104px;\n\t\t\t\n\t\t\t\n\t\t}\n\t\t.bbg-interstitial #card_1.bbg-card_hasCta .bbg-card__content, .bbg-interstitial #card_1.bbg-card_hasCta .bbg-card__content p{\n\t\t\tcolor:inherit;\n\t\t}\n\t\t@media (max-width: 768px) {\n\t\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 32px;\n\t\t\t}\n\t\t}\n\t\t@media (max-width: 480px) {\n\t\t\t.bbg-interstitial #card_1.bbg-card_hasCta{\n\t\t\t\tpadding: 80px 18px;\n\t\t\t}\n\t\t}\n\t<\/style>\n\t<div class=\"wpb_content_element bbg-card  bbg-card-dark bbg-card_hasCta has_interstitial\" id=\"card_1\" data-card_type=\"no_image\">\n  \n  \n  <div class=\"bbg-card__innerwrapper\">\n    <div class=\"bbg-card__content\">\n      \n      \n                      <h3 class=\"bbg-card__title\">Bloomberg Intelligence: Data-driven research<\/h3>\n      \n              <div class=\"bbg-card__wysiwyg bb-wysiwyg\"><p>Learn more<\/p>\n<\/div>\n          <\/div>\n\n          \n<div\n  id=\"cta_651428909037515739\"\n  class=\"wpb_content_element bbg-cta icon icon-arrow\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p right\">\n      <a\n        class=\"bbg-cta-link link interstitial_cta\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/products\/bloomberg-terminal\/research\/bloomberg-intelligence\/\"\n        target=\"_blank\"\n        rel=\"\"\n        data-section-name=\"\"\n                role=\"button\"\n        aria-label=\"Learn more\"\n        >\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n\n      <\/div>\n\n  <\/div>\n\n<\/div>\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>Returns leaderboard and distribution<\/h2>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:1024px\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"800\" height=\"370\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/performance-by-asset.png\" class=\"bbg-single-image__image attachment-large\" alt=\"\" title=\"performance-by-asset\" srcset=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/performance-by-asset.png 800w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/performance-by-asset.png 552w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/performance-by-asset.png 768w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/performance-by-asset.png 600w, https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/performance-by-asset.png 954w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>Crown jewel of volatility<\/h2>\n<p>UK rates have been at the epicenter of volatility, helping to push up volatility in US and EU. While political volatility is high, the expectation of the lessons of fiscal responsibility has been learn and exit of &#8220;Trussonomics&#8221; can help see implied vol decay over the coming weeks from extremely distorted levels. This can see the 1m30y swaption volatility move closer to our macro model ex-realized vol of 180 bp\/year. This is also close to where the yield level implies, based off the pre-mini-budget linear relationship at around 200 bp\/year (see left-side link).<\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:1024px\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"535\" height=\"447\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/long-end-rates.png\" class=\"bbg-single-image__image attachment-large\" alt=\"\" title=\"long-end-rates\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>Higher floor in equity vol<\/h2>\n<p>The VIX index has been floored at a higher level this year, which is consistent with the wide dispersion of macro data and uncertainty around the terminal rate. However, the lack of a liquidity event and grind lower in the market has seen convexity underperform. Volatility knockout options &#8212; puts options that knock out if realized vol exceeds a defined level &#8212; can perform well in this environment where the market grinds lower and realized vol doesn&#8217;t excessively spike. KO options essentially take advantage of the discrepancy between implied and realized vol, where the steeper the smile the better at initiation.<\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:1024px\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"533\" height=\"444\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/decline.png\" class=\"bbg-single-image__image attachment-large\" alt=\"\" title=\"decline\" \/>\n        \n            <\/figure>\n<\/div>\n\n<div\n\tclass=\"bb-wysiwyg\"\n\t\t>\n\t<h2>Skew continues to be marked lower<\/h2>\n<p>The flattening of the skew has reduced the discount that volatility KO options offer relative to vanilla puts. The grind lower in the market, monetization of hedges and less reactive vol to SPX declines is why the skew has been marked significantly lower this year, in our view. The absolute level of implied vol is high and therefore not expected to significantly increase further in a selloff, leading the skew to reprice lower.<\/p>\n\n<\/div>\n<div id=\"\" class=\"wpb_content_element bbg-single-image align-center\">\n    <figure class=\"bbg-single-image__figure\" style=\"max-width:1024px\">\n                <img loading=\"lazy\" decoding=\"async\" width=\"536\" height=\"455\" src=\"https:\/\/assets.bbhub.io\/image\/v1\/resize?width=auto&amp;type=webp&amp;url=https:\/\/assets.bbhub.io\/professional\/sites\/10\/skew.png\" class=\"bbg-single-image__image attachment-large\" alt=\"\" title=\"skew\" \/>\n        \n            <\/figure>\n<\/div>\n\n<\/div><div\n    class=\"bbg-column bbg-column--width-2\"\n    style=\"\"\n    >\n    \n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n\n<div  class=\"bbg-row-container\">\n    <style>section[data-anchor=row-69fe10a692fa5]::before {\n\t\t\t\tbackground-color: #eeeeee;\n\t\t\t}<\/style>\n    <section 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Now, let us do that for you.<\/p>\n<\/div>\n          <\/div>\n\n          \n<div\n  id=\"cta_1421214831863652417\"\n  class=\"wpb_content_element bbg-cta icon icon-arrow\">\n  <style>\n    \n    \n    \n  <\/style>\n  <div\n    class=\"bbg-cta-link link-holder\"\n    data-links-type=\"cta-links\">\n    <p class=\"bbg-cta-p right\">\n      <a\n        class=\"bbg-cta-link link interstitial_cta\"\n        href=\"https:\/\/www.bloomberg.com\/professional\/request-demo\/\"\n        target=\"\"\n        rel=\"\"\n        data-section-name=\"\"\n                role=\"button\"\n        aria-label=\"Learn more\"\n        >\n                <\/a>\n    <\/p>\n  <\/div>\n<\/div>\n\n      <\/div>\n\n  <\/div>\n\n<\/div>\n\n\n<\/div>\n\n\n                    <\/div>\n    <\/section>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Equity volatility metrics, such as measures of skew and convexity, aren&#8217;t showing the same signs of stress as in other assets, despite the macro uncertainty.<\/p>\n","protected":false},"author":1820,"featured_media":40153,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"template-article.php","format":"standard","meta":{"_yoast_wpseo_primary_category":"1256","footnotes":""},"categories":[453,469,444],"tags":[676,565,577],"series":[],"class_list":["post-46445","post","type-post","status-publish","format-standard","hentry","category-markets","category-risk","category-trading","tag-676","tag-bloomberg-intelligence","tag-research","type-article"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v19.11 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Metrics in equity volatility lack stress despite uncertainty | Insights | Bloomberg Professional Services<\/title>\n<meta name=\"description\" content=\"Equity volatility metrics, such as measures of skew and convexity, aren&#039;t showing the same signs of stress as in other assets, despite the macro uncertainty.\" \/>\n<meta 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