Morning Note: Whole Lotta Hedging Going On

As you may have noticed, September was relatively tough on the stock market:

S&P 500 3-month, 4-hour chart:

And, for sure, it had the attention of options traders.

Here's a 3-month look (September rectangled) at the VIX, which tracks the implied volatility of the S&P 500 Index embedded in the pricing of its options contracts:

Note where we sit today, at roughly the lowest volatility expectations over the past 3 months. I.e., options sellers (for the moment) are pricing in a pretty easy go of it from here.

Now, there's a similar metric that I'll say digs a little deeper, and reflects the extent to which investors believe that, short-term calm notwithstanding, there exists some serious under the surface risk that could see markets crack in a relatively big way.

That one's called the Skew Index. And like the VIX it tracks the pricing of volatility in SP500 options, but unlike the VIX, which reflects in "at-the-money" contracts, the Skew Index is calculated from the price of "out-of-the-money" options, which is where hedging bets are placed.

Here's the history (red shaded areas highlight recessions [and ugly bear markets]) of the Skew Index. While it's down from its June all-time-high, historically-speaking it remains very elevated (red circle captures today's level):

Let's zero in on the 5-year chart:

Indeed, while the short-term waters appear to be calming, there's under the surface evidence that has those with the wherewithal hedging against something potentially ugly to the downside. I.e., we're not the only ones 😎...

Asian equities were mixed overnight, with 8 of the 16 markets we track closing lower.

Europe's mostly green this morning, with 14 of the 19 bourses we follow trading higher, as I type.

US stocks are mostly higher as well to start the day: Dow up 121 points (0.34%), SP500 up 0.27%, SP500 Equal Weight up 0.61%, Nasdaq 100 down 0.05%, Nasdaq Comp up 0.01%, Russell 2000 up 0.53%.

The VIX sits at 15.43, down 1.72%.

Oil futures are up 0.46%, gold's up 0.83%, silver's up 2.33%, copper futures are up 0.15% and the ag complex is down 0.03%.

The 10-year treasury is down (yield up) and the dollar is down 0.14%.

Led by KRBN (carbon credits), MP (rare earth miner), silver, Verizon and wind stocks -- but dragged by solar stocks, oil services stocks, Indian equities, tech stocks and ag futures -- our core portfolio is up 0.43% to start the day.

"...at some point in the growth of a boom all aspects of property ownership become irrelevant except the prospect for an early rise in price. Income from the property, or enjoyment of its use, or even its long-run worth is now academic."

--John Kenneth Galbraith. The Great Crash 1929 

Kinda feels that way -- in some markets -- these days...

Have a great day!
Marty