Straddle Pricing Low, But High Enough For The Payroll Number Reaction Saturday Review For Week Of June 3, 2024 - June 7, 2024 RUSSELL RHOADS, PHD, CFA JUN 8 Stocks were mostly higher, except for US small caps as the Russell 2000 (RUT) lost over 2% last week. For the year, RUT is fractionally in the red for 2024. The Nasdaq 100 (NDX) gained 2.50%, partially thanks to NVIDIA (NVDA) which gained over 10% in a run up to their 10 for 1 stock split. VIX was lower, but the futures were mixed with June – September losing value, while October through February gaining slightly. Near term risk is lower, but concerns surrounding higher volatility toward the end of 2024 and into 2025 remained steady. The ‘twist’ in the VIX curve resulted in divergent performance for VIX related ETPs. At the short end of the curve, VXX lost value while SVIX gained. The long ETPs that focus on longer dated futures were higher, while ZIVB, which offers short exposure to longer dated VIX futures lost a little ground. The VSTOXX term structure lost value on the short end and was basically flat for futures starting with September running through January of next year. The performance for short-dated index straddle sellers was mixed last week and mostly dependent on the market traded. S&P 500 (SPX) one-day straddle pricing overpriced the subsequent move four of five days last week with Wednesday being the lone loser. Small price changes for SPX over the course of the other days more than made up for Wednesday’s losses. Also, note the premium on Friday for non-farm payrolls at 0.64% of the index. This is lower than the average of the last five reports, which is 0.80%. Despite pricing at the low end of the range, SPX straddle sellers realized profits this past Friday. NDX straddle pricing mirrored that of SPX while overpricing four of five days and winning on Friday with pricing at 0.83% of the index. Friday’s pricing was just over .50% lower than the longer-term average of 1.34%. RUT straddle sellers had a tough week with only two days where the straddle overpriced the next day’s move. Also, the overpriced days were only slightly profitable relative to losses on two of the three days were RUT moved more than the premiums offered to option sellers. There was a rate cut out of the ECB on Thursday which is the explanation for the higher premiums for Euro Stoxx 50 straddles on that day. Straddles were underpriced on Tuesday and Wednesday with losses overwhelming gains on days where price changes did not exceed the straddle pricing. Finally, DAX option sellers fared even worse than their Euro Stoxx 50 counterparts with losses on the first three days of the week and gains to end the week. Hopefully option sellers were consistent across the week and made some of the early week losses back on Thursday and Friday.