The S&P 500 gapped higher today following Friday’s close, and as last week showed, these types of moves tend to be unstable. It’s not unusual to see the index give back the day’s gains fairly quickly, as happened twice last week. Additionally, the index reached the 100% extension of the rally from low to high on Thursday and Friday, making this as good a place as any for a potential pullback.

Once the IV flattened out, so did the S&P 500.

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VIX options expiration is scheduled for Wednesday morning, and currently, the put wall appears to be around 18. That likely suggests the VIX isn’t expected to decline much further from Monday’s close.

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Additionally, realized volatility rose today across the board, and as long as the SPX continues to move by more than 80bps, then 21-day realized vol will rise and keep implied volatility elevated.

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The S&P 500 gapped higher today following Friday’s weak close, and as last week showed, these types of moves tend to be unstable. It’s not unusual for the index to give back the day’s gains fairly quickly, as it did twice last week, when a gap was followed by a weak close. Additionally, the index reached the 100% extension of the rally from low to high on Thursday and Friday, making this as good a place as any for a potential pullback. However, the index did close above the 20-day moving average for the first time in a week.

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The spreads between the dispersion index and the 3-month implied correlation index have returned to their pre–October 10 sell-off levels. Whatever progress had been made has now been undone, leaving the market back at some overly stretched metrics. This will need to unwind eventually, but it seems market participants are determined to keep pushing this trade until the Big Four report earnings next week.

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Tomorrow is also a Treasury settlement date, with $29.0 billion set to settle. Recently, settlement dates have tended to coincide with tighter overnight funding conditions and increased usage of the Standing Repo Facility. Tomorrow will therefore be another test. While it hasn’t always been the case, there have been a few occasions when the S&P 500 has fallen on settlement dates.

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