Volatility rose as the technology decline extended: the account fell 12.81%
On Monday an early rebound faded quickly, and technology shares fell for a third straight session. Both the Nasdaq and the S&P 500 had been up more than 1% early in the day, but by the close QQQ had lost 1.36% to 681.09 and the Nasdaq-100 1.39%. Chipmakers were again hit hardest: the semiconductor index fell 3.37%, Intel 8.8%, AMD 7.5% and Micron 5.8%. Among the largest index members, Microsoft lost 2.83% and Apple 1.83% ahead of its report, while Amazon rose 2.20%. The S&P 500 fell 0.51% to 7,541.40, while the equal-weight S&P 500 rose 0.76% and the Dow 0.41%, as money continued to move out of technology into other parts of the market. The ISM manufacturing index rose to 55.5 from 54.5, above expectations. The 2-year Treasury yield rose to 4.59%, while the 10-year eased to 4.91%. After the close, Apple reported results above expectations, but its shares traded lower in extended trading on a softer margin outlook.
Implied volatility rose for a second session, even though the index fell less than on Friday. VIX rose 1.73 points to 21.15 and VXN 2.39 points to 30.89; 30-day QQQ implied volatility (own calculations) rose from 25.11% to 27.72%. At the 30-day horizon, 25-delta puts gained 2.2 volatility points and 10-delta puts 2.65 points, against 1.76 points for 25-delta calls; the 25-delta skew widened to 7.68 points. The skew index eased to 27.7 from 28.8, because the overall level of volatility again rose faster than the skew itself. The front of the curve rose most: VIX9D/VIX moved to 1.062 from 0.991 and VIX/VIX3M to 0.979 from 0.935. On the Convexa scale the regime moved from Normal to Tense, with the event and negative-gamma modifiers: QQQ closed 4.92% below the model zero-gamma level of 716.34.
The account closed the session 12.81% lower, against a 0.48% decline in SPY. The main loss again came from the short long-dated puts: as QQQ fell and put volatility rose, they gained more in value than the day's total loss. It was partly offset by the short long-dated calls, which lost value in the decline, by the long lower-wing puts, and by short-dated protection opened during the session in the 3 and 9 November expiries. The 2 November short-dated protection and calls expired worthless. During the session the upside wings were also moved to the 3 and 9 November expiries. This was the first session of the week and of the month, so week-to-date and November-to-date results equal the session: −12.81% against −0.48% for SPY. Since the start of the public record on 5 August the result was −8.23%, against −2.27% for SPY.
At the close the weekly QQQ straddle priced a move of ±3.30% to the Friday 6 November expiry (range 658.62–703.56), against ±3.20% a session earlier. QQQ closed 0.19% above its 200-day average (679.82). Ahead were the JOLTS report on 3 November at 10:00 ET, the U.S. midterm elections and AMD results after the close the same day, the ISM services index on 4 November, productivity and costs and weekly jobless claims on 5 November at 08:30 ET, and the October employment report on 6 November at 08:30 ET.
Editor’s Note reflects the author’s market perspective at the time of publication and should be read as commentary, not investment advice.