US options volatility spiked Friday as technology stocks were battered by disappointing earnings. The Cboe Volatility Index touched the highest intraday level since April as investors snapped up protection against a bigger slide in the S&P 500 index, with the US benchmark tumbling as much as 2.5% to 7,527. While past sell-offs this month have been concentrated in the technology heavy Nasdaq 100 Index, Friday's move spilled over into broader stocks.
There was demand for broader portfolio hedges with VIX calls especially bid up. Bad days for tech stocks can often be good news for other parts of the equity market, such as value investments like consumer staples. But on Friday, stocks moved more in sync during the selloff. "That rotation trade seemed to break a little bit" once the S&P 500 fell below 7,600, said Brent Kochuba, founder of options research provider Spot Gamma. "We're starting to have a proper sell off now." Stock volatility has been restrained compared to other asset classes like rates since a fragile truce between the US and Iran began in April.
The S&P 500 Index options market was pricing a relatively sedate 0.5% move before markets opened on Friday, despite futures pointing toward a significant fall in stocks on the open. "S&P vol was really underpriced today heading into this event," said Kochuba.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing