Tail volatility in the upper wing of the surface, at strikes above the current price, rose for most of the week. It peaked on the morning of October 2: after a soft employment report, technology shares moved higher and volatility in the upper wing rose sharply. In our experience, the strongest spikes in the upper wing tend to coincide with moves in SpaceX or Tesla shares; this time, both moved higher.
Once the week's main event had passed, the premium built around it unwound quickly: volatility declined across the surface, the market stabilized, and by the close the portfolio had moved into profit. It was a challenging week. We continue to believe that a rally accompanied by rising volatility in the upper wing often precedes a correction, and we will be watching whether that scenario plays out.
Editor’s Note reflects the author’s market perspective at the time of publication and should be read as commentary, not investment advice.
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