Volatility Has Fallen To Its Lowest Level In 18 Months On The Stock Market.

Are you worried about me?

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Stock-market investors didn’t seem too bothered on Friday, despite a showdown over the U.S. debt ceiling, recession fears, and persistent banking jitters. The Cboe Volatility Index VIX, -7.34%, a closely watched measure of expected stock market volatility, slipped to an almost 18-month low during April, as major indexes ended on a positive note.

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In addition to being commonly referred to by the ticker VIX, the VIX is also called Wall Street's fear gauge, since it is a derivative of options that calculates the expected volatility for the S&P 500 index SPX, 0.83 % in the next 30 days. According to Dow Jones Market Data, it traded as low as 15.93 on Friday, which is well below its long-run average of 20. This is the lowest it’s traded since Nov. 4, 2021.

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It was a positive afternoon on the stock market Friday afternoon with the S&P 500 up 0.80%, the Dow up 0.80%, and Nasdaq up 0.9%. The S&P 500 and Dow were both near the top of their monthly gains in April.

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There is some evidence that the VIX is restrained partly due to unexpectedly strong economic data reported, according to Christian Mueller-Glissman, a senior managing director at Goldman Sachs who is responsible for asset allocation research within a portfolio strategy.

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He became more confident about the economy on Friday and reported that the trend has held up despite widespread fears that the country could enter a recession. In a research newsletter published on Friday, he said employment and consumer spending continue to be strong. History shows that volatility in financial markets is often attributed to the state of the labor market.

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Nevertheless, according to Mueller Glissman, it appears unlikely that we will see subdued volatility for a long time since Goldman says it expects the U.S. economy to expand by a below-consensus 1.6% in 2023 and then slow down from there.

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Using pricing data from VIX futures contracts, the VIX futures curve can be analyzed and it is apparent that the curve slopes upward, which implies that investors expect volatility to increase over time.

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A put option, which is a financial instrument that gives the holder the right, but not the obligation, to sell an underlying asset for a certain price within a certain period of time, has become more expensive relative to a call option, which is an option in which the holder is allowed to buy an underlying asset at a specified price within a particular time period. A put is a financial instrument that lets you bet that security will fall in price; however, a call is a financial instrument that can be used to bet oppositely.

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Mueller-Glissmann said, “There are signs that the market is moving away from looking at upside risks to looking at downside risks. Confidence levels are low, but there is a sense of bearishness in the air.”

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Traders are referring to the products described here as "0DTEs," short for zero days until expiration, as products with one day or fewer left until they expire. Some investors question whether the VIX still has any relevance, especially given a surge in the trading of option contracts with just one day or less left.

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Cboe announced Monday the launch of a new VIX gauge that tracks implied volatility based on options that are about to expire. It is called the Cboe 1-day Volatility Index. This gauge, which has yet to reach any records, has been trading between 15.59 and 8.55 this week and was near 13.45 late Friday when the gauge was released.

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