TYVIX Weekly Review: How This Week’s Mini-Crisis Impacted Volatilities Across Different Asset Markets

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General Volatility Flash       

U.S. investors’ expectations of how China’s slower economic growth pace would impact the U.S. economy experienced a violent turnaround, setting the scene for Monday’s stock market tsunami. U.S. stocks spent the week recovering, and Figure 1 shows how the unfolding of this mini crisis impacted volatilities across different asset markets. Although the stock market plunged on Monday, it is clear from Figure 1 that trouble was brewing as early as Thursday, August 20.  By Friday, August 21, all VIX measures were up on a closing basis. In fact, the percentage increase in VIX was even higher on Friday than on Monday on a closing basis.

The CBOE Volatility Index (VIX Index) rose because demand for puts increased as investors feared a market correction.  On the other hand, the volume of calls on 10-year Treasury notes was greater than the volume of puts, suggesting the rise in Treasury volatility was mostly caused by the potential for an increase in Treasury prices.

Figure 1. Expected volatility across markets before, during and after August 24, 2015. 828Fig1

Federal Fund Target Rate and Volatility

Equities have mostly recovered from Monday’s decline, but volatility levels are still up from last week. However, except for the VIX Index, they are not significantly different than median values since 2003. Futures on TYVIX also dropped from Monday’s values, but they are up from last Friday’s .

Figure 2 and 3: Weekly Roundup TYVIX and futures on TYVIX828Fig2 828Fig3

 Post written by Catherine Shalen, CBOE Research