As we head into Monday’s expiry, volatility pricing has taken an interesting turn. According to UBS Securities and Derivatives, implied volatility for the S&P straddle is somewhat elevated, with the breakeven point at 31.4 points – that’s an implied move of 0.45%. However, when we compare this to last Friday’s expiry and the December expiry, implied volatility has taken a steeper leg lower since the Federal Open Market Committee (FOMC) meeting.

So what does this mean for traders? On the surface, it seems that the market is pricing in a potentially more stable environment than last week’s FOMC meeting. However, there are some interesting trades emerging on both the upside and downside. For instance, today’s 6890 call has been the most actively traded contract, with some notable interest in next week’s Friday’s (Wk2) 6860/6900/6920/6960 call condor. This suggests that traders are hedging against potential upside moves, even as the market remains supported.

On the fixed income side, implied volatility has continued to fall since the FOMC meeting, but there’s a noticeable shift in directionality. The TY risk reversals have come off across expiries, indicating a lower bias. This morning, activity has been focused on the downside, with the most active trades being the TYZ5 112/111 put trading 7k times and the TYZ5 112 put trading an additional 2k times outright. Curve flows in the desk have been mixed, with selling in TU and FV, while the rest of the curve has been better to buy.

Overall, it’s worth keeping an eye on these trends as we head into Monday’s expiry. While implied volatility may be pricing in a more stable environment, there are still interesting trades emerging on both sides of the market. As always, it’s important to stay informed and adapt your trading strategies accordingly.