'Spot Down, Vol Down' As Investors Monetized Hedges

2026-03-17 06:47:00 ET

By Mandy Xu

Cross-Asset Volatility : Implied volatilities were mixed last week as the Iran war hit its two-week mark. Oil volatility continued its upward climb, with the OVX Index gaining another 15 pts to 120% - trading over 4 standard deviations above its long-term average and only exceeded by the 2020 COVID pandemic (when oil prices went negative). While oil prices have whipsawed over the past week on fast-changing headlines, positioning in the oil options market has remained consistently bullish, with demand for calls far outpacing the demand for puts. This is true even for longer-dated (e.g. 6-months) options, indicating fear of a sustained disruption to oil supply in the region. With inflation risk firmly biased to the upside, bond yields have risen alongside rates volatility, with VIXTLT Index up over 19 nms last week. Fed rate cut expectations have also been dialed back, with the market now pricing just 1 rate cut for this year (vs. ~2.5 cuts just two weeks ago). Also notable is the move in credit vol, which has spiked higher on the back of both increasing geopolitical risk as well as private credit concerns. For most of the past year, credit volatility has ranked as the cheapest cross-asset vol, signaling confidence in the broader US economy. Not anymore – the VIXIG index has almost tripled from its January low. Gold and equities are the only asset classes to see their volatility decline last week, with oil now overtaking gold as the richest cross-asset vol (Exhibit 1)....

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