Nomura Warns of Increased Market Volatility as SPX Skew Rises, VIX Shows Resistance

Nomura has highlighted that short volatility traders are facing losses due to a sudden and sharp increase in the skew of index options. The difference in implied volatility between out-of-the-money puts and calls has risen significantly, reflecting increasing levels of fear in the markets. This shift in skew, which had exploded in April, retreated in May but is now climbing again. Analysts note that this steeper skew indicates potential for larger drawdowns and more volatile index movements, after what has been 1.5 years of 'crash-up' only. The SPX skew has been rising, with the market experiencing a 50-point day and significant resistance levels for the VIX. Despite the VIX turning green, short-duration option premiums have not shown a significant increase in panic. The market also saw a 1% bounce in the afternoon.