After a volatile October, traders expect options activity and market turbulence to intensify heading into year-end.
The Cboe Volatility Index (SP500) pulled back from recent record highs, signaling mounting investor anxiety. Analysts say the usual inverse relationship between stock prices and volatility has broken down, with both rising together in recent weeks, a pattern seen during speculative phases of past market cycles, Bloomberg News reported Sunday.
Several factors are feeding the uptick in volatility: large stock swings following earnings reports, the ongoing U.S. government shutdown, and uncertainty over Federal Reserve policy ahead of its December meeting. A shortage of official economic data has only added to the unease.
Maxwell Grinacoff, head of U.S. equity derivatives research at UBS, said markets have grown fragile, with small headlines capable of triggering sharp swings in indexes and volatility spikes. He said the VIX has struggled to fall below 16 or 17, even when stocks hit new highs, reflecting investors’ simultaneous desire to chase gains and hedge against sudden losses, according to the Bloomberg News report.
Strategists cited by the media outlet warned that the “spot-up, vol-up” dynamic where both equities and volatility rise often signals speculative excess. They compared the current environment to the early stages of the 2000s tech bubble, when prices moved more on momentum than fundamentals.
Options activity shows traders betting on both sides of the market. Demand for bullish call options has remained strong, particularly in technology stocks, but investors are also piling into volatility trades to protect against downturns. The VVIX, which measures volatility in VIX options, has risen alongside the broader market’s 30-day realized volatility, now at its highest since June.
As earnings season winds down, analysts expect less company-specific turbulence but continued macro-driven uncertainty. For now, the calm that defined the summer appears over, and investors are preparing for a choppier finish to the year, Bloomberg News reported.
