Options Positioning Diverges Between Large- Vs. Small-Caps

2025-09-11 07:19:00 ET

By Mandy Xu

Cross-Asset Volatility: Implied volatilities were mixed last week as investors weighed labor market weakness with rising odds of additional Fed easing. A September 25bps cut is now fully priced in (with additional ~10% probability of a 50bps jumbo cut), while the odds of a sequential cut in Oct have jumped from 50% to now 80%. Not surprisingly, the rapid repricing of Fed expectations has caused a jump in interest rate volatility, with the MOVE Index up almost 6 pts to 85 bps vol, becoming the second major asset where implied volatility is now trading above their long-term average (after gold; see Exhibit 1). Equity volatility ended the week mostly unch’d, with the VIX® index down 0.2 pt, with investors choosing to focus on the positives of Fed easing rather than the weakening jobs picture. A similar sentiment can be seen in the credit markets, where credit spreads tightened marginally wk/wk and implied volatility fell (VIXIG down 1 pt). Credit vol remains the cheapest cross-asset vol (see Exhibit 1)....

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