The spread between the volatility realized in the S&P 500 over the last 30 calendar days and the volatility implied in S&P 500 options 30 calendar days ago is about the widest that it has been this year, with the exception of a similar instance in early August. [5,6] That means stocks haven’t been nearly as volatile as index option prices have assumed they would be. Put another way, it has paid to be a net seller of options over the period. Whether this persistent “overbid” in implied volatility will continue depends entirely on the risk appetites of traders and on the ability of the market to stay calm and gleeful – an increase in days like Wednesday and Thursday of last week would make options prices more nearly fairly valued.
The implied volatility in oil options continues to look fairly priced [16,17], although traders with a neutral-to-bullish intermediate price outlook should consider capturing the vertical skew in near-term put options. Gold implied volatility (GVZ) has fallen near its 52-week low, [3,12] and we can expect it to reach that low if traders continue to reject the $1000 price level.