Stocks finished the day higher. I could try to explain what happened today, but I don’t think it’s as obvious as I’d like. The market looked like a giant gamma squeeze, but that isn’t obvious either, given that the VIX was flat and index gamma wasn’t negative. So you really have to look at the index components, which point to the move in Meta (META), which seemed, let’s say, odd. I saw the stock was upgraded, but I can’t remember the last time I saw one move like this on an upgrade.
However, the jump in implied volatility, call volume, and deltas was the telling part, and it made you realize where the epicenter of the squeeze was.
Even more amusing, we saw Meta’s CDS widen to 90 today.
All of that helps explain why the equal-weight S&P 500 ETF, the RSP, rose by just 28 bps. The analysis is there, and you can find it. It just took a bit more digging than I really cared to do today.
Finally, despite the big rally, the VIX did nothing. In fact, because of the size of the move, realized volatility rose on the day, on both a 9-day and 21-day basis, with the 9-day now at nearly 13 and only about 2 points below the VIX. In all likelihood, the VIX doesn’t have much room to fall, not with implied correlation already at very low levels, and not if the VIXEQ keeps rising.
Based on where implied correlation and the VIXEQ are today, the VIX model sits around 11.3, and the VIX has tended to trade about 4 points above that. Even if the VIXEQ rose to 50 and the COR1M fell to 4, that would still put the VIX around 13 to 14.
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