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Stocks were surprisingly higher on November 25th, even though it was a Treasury settlement day and we saw overnight funding rates rise, notable usage of the Standing Repo Facility increased, and a drop in Bitcoin. Given those conditions, it would have made sense for the S&P 500 to finish lower overall. In fact, the index fell sharply at the open—by nearly 80 basis points at one point—before reversing and grinding higher for the rest of the session as implied volatility was sold, potentially due to the shortened trading week.

It’s not unusual to see implied volatility sold ahead of holiday trading sessions, since time decay remains the same while the number of trading days decreases, making it an attractive setup for shorting volatility. That appears to be what happened on November 25th, despite what otherwise seemed like favorable conditions for the market to trade lower.

Adding insult to injury, NVIDIA (NVDA) was down more than 2% on the day and had traded as low as 6% at one point in the morning. But it didn’t matter, because the other 493 stocks were pushed higher, and Meta helped lift the index as well. So, at least for the moment, it seemed there was a mechanical force in the market that was able to override tight liquidity conditions, higher overnight funding rates, and even an underperforming Nasdaq 100 throughout the session.

In fact, the CBOE VIX decomposition tool clearly shows what drove the VIX drop from November 24 to November 25. Almost the entire decline came from mechanical volatility factors—not fundamentals, not macro dynamics, and not a sudden reduction in downside risk. The biggest contributors were Sticky Strike at –0.92 and Parallel Shift at –0.72, which together accounted for the majority of the total move. These factors essentially reflect market makers marking down volatility across the curve and adjusting IV levels most likely to account for the shortened trading week.
 

(CBOE)

In essence, today was nothing more than a volatility dispersion day. The constituent volatility index fell less than the VIX, while the dispersion index moved higher. This is exactly the type of behavior we typically see on volatility-dispersion days, likely driven by the holiday and the shortened trading week.
 

Another interesting fact was that Meta’s (META) gain of nearly 4% was accompanied by the CDS widening on the day.
 

SOFR is likely to be higher tomorrow. The overnight repo rate at the DTCC rose to 4.04% today, up from 3.97% on November 24, and that typically leads to SOFR rising. Given today’s move, tomorrow’s SOFR is likely to be higher than today’s 3.96% level, probably over 4%. The real liquidity pressures are most likely to come on Friday and Monday, when almost $130 billion in Treasuries are due to settle.
 

Finally, SoftBank (SFTBY) fell another 10% yesterday and has now retraced all the gains it had made since the beginning of September, suggesting that the gamma squeeze that previously supported the stock is now over. If the shares break 14,000 yen, the next support level lies at 12,000.
 

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