Spot Vol Correlation - SPX, QQQ, GME, TSLA, AAPL, MSFT - Actionable Data with Volland Workspaces

Summary

This video explains the concept of spot-VIX correlation, focusing on the relationship between underlying asset prices (like SPX) and their implied volatility. The most observed correlation is between SPX and VIX, with the video explaining how to visualize this using widgets. It also discusses how volatility events, like the Monday effect and VIX overreaction, can impact markets. By examining individual stocks like Apple and Microsoft, the video highlights varying levels of spot-VIX correlation and provides insights on how to interpret changes in implied volatility to aid trading decisions.

Takeaways

• 📉 Spot-vol correlation measures how movements in an underlying asset relate to changes in its implied volatility (VIX or equivalent).
• 📊 The SPX–VIX relationship is the most widely analyzed, but Voland provides spot-vol correlations for 240+ assets.
• 🔍 The scatter plot widget shows daily percent changes in the underlying versus point changes in volatility to estimate correlation and slope.
• 📐 The slope represents how many VIX points typically move when the underlying moves 1%—for SPX, about −74 points per +1% move.
• ⚠️ Deviations from the expected slope indicate ‘over-VIXing’ or ‘under-VIXing,’ signaling abnormal volatility reactions.
• 📅 The Monday effect causes equities to appear over-VIXed on Mondays and under-VIXed on Fridays due to weekend volatility mechanics.
• 🌪️ A ‘volatility event’ (V-event) is defined as more than two points of over-VIXing, often linked to heavy put buying or a liquidity drop.
• 🛡️ Excessive put buying can later support the market due to increased Vanna exposure, visible as positive bars in the Vanna widget.
• 💧 Sudden drops in option liquidity can also cause volatility spikes; this is detectable via sharp rises in the Delta-adjusted dealer spread.
• 📈 SPX typically fully recovers within two weeks after major volatility events, a pattern less reliable for individual equities.
• 📉 Some assets (GME, TSLA) show low or near-zero spot-vol correlation, allowing IV to rise or fall independently of price.
• 🍏 Others (AAPL, MSFT) show strong correlation, making IV movements more predictable based on spot moves.
• 🔧 The widget system allows traders to analyze spot-vol correlation per asset and identify whether current volatility behavior is normal or anomalous.

Q & A

What is spotV correlation?

SpotV correlation refers to the relationship between the spot price of an underlying asset (like SPX) and its respective volatility index (VIX). It shows how the daily changes in the underlying asset correlate with changes in the VIX.

What is the significance of the R-squared value in the spotV correlation chart?

The R-squared value in the spotV correlation chart represents the strength of the relationship between the asset's price changes and its volatility. A higher R-squared value indicates a stronger correlation between the asset and its VIX.

How does the slope in the spotV correlation chart help traders?

The slope in the chart shows how much the VIX moves in response to a 1% movement in the underlying asset. A negative slope indicates that when the asset price increases, the VIX generally decreases.

What is meant by 'over VIX' and 'under VIX'?

'Over VIX' refers to situations where the VIX increases more than expected based on the underlying asset’s price movement. 'Under VIX' means the VIX increases less than expected. These deviations from the trend line are important indicators for traders.

What is the Monday effect in the context of spotV correlation?

The Monday effect refers to the tendency for equities to 'under VIX' on Fridays and 'over VIX' on Mondays. This happens because there is no market activity over the weekend, and the passing of the weekend creates additional volatility.

What causes a volatility event in the market?

A volatility event occurs when the VIX moves considerably higher than expected, typically by more than 2 points. This can be caused by excessive put buying or a drop in market liquidity, both of which cause larger-than-expected volatility in the market.

How do excessive put purchases impact the market?

When excessive puts are bought, it can lead to an increase in Vana exposure, which in turn supports the market. If these puts do not go in the money, it can cause a dramatic increase in Vana, contributing to a potential market recovery.

How does liquidity affect spotV correlation?

Liquidity issues in the market can cause volatility spikes. A decrease in liquidity, often seen in situations like hedge fund liquidations, can distort the spotV correlation, making the VIX react more than expected to underlying price movements.

Why do volatility events often lead to a recovery in SPX prices?

Volatility events are often followed by a full recovery in the underlying asset, especially in SPX. This recovery is typically completed within two weeks due to the normalization of market conditions after the volatility event.

Why do individual stocks like GME and Tesla have weaker spotV correlations compared to SPX or Apple?

Individual stocks like GME and Tesla often show weaker spotV correlations because their implied volatility can change independently of the stock's price movement. This behavior may be due to unique factors affecting these stocks, like speculative trading or company-specific news.