Defensive Positioning Beneath A Calm Vol Market

2026-01-13 01:45:00 ET

By Mandy Xu

Cross-Asset Volatility: Implied volatilities were mostly range-bound last week despite rising geopolitical risk. Equity, rates, credit, and FX volatilities all ended the week near a 1-year low (see Exhibit 1). Oil was the only notable mover, with 1M implied volatility jumping up over 8 vol pts to 36.8% (70th percentile high). As we highlighted last week, option market positioning has become increasingly bullish in oil, with outsized demand for upside calls driving an inversion in oil skew (i.e., calls are now trading at a premium to puts). This is evident in both options on the commodity (Brent/WTI) as well as USO (US Oil Fund ETF). Despite the threat of more supplies coming online from Venezuela, traders appear to be more focused on the near-term risk of potential supply disruptions stemming from the Iran unrest. Even with Trump’s escalating attacks on the Fed over the weekend, cross-asset vols appear fairly tame this morning as investors weigh the risk of Fed independence. The VIX® index is up just 1.5 pts pre-market to ~16 while FX volatility is up ~0.3 pts across the majors....

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