A Volatility Storm is Brewing

Since the beginning of the year realized volatility in the S&P 500 has dropped ~60% as the leading U.S. equity index experiences its longest streak of days without a 1%+ move in two years:

 

SPY (Daily)

 

SPY_Daily_6.8.2016

20-day rolling average true range has declined ~60% since February as equities have continued their low volatility grind higher. Implied volatility also remains relatively subdued with the VIX not budging above 17 for the last 3 months.

 

SPY_1

One thing is for sure, low volatility market environments plant the seeds for periods of higher volatility. There could be a trading opportunity approaching for nimble options traders as July has a history of volatility spikes and it’s difficult to imagine the current relatively placid market environment lasting too much longer given the candescent¬†macro-market landscape:

 

vix-average-returns-by-month-chart-market-volaility-1990-2014

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