Morningstar Volatility Report: Continued Calming
Major calming of financial services uncertainty help the MVI fall by 3%.
Investing Specialists
The Morningstar Volatility Index (MVI) monitors changes in uncertainty about the future across the equity markets during the trading week. The MVI is a measure of the implied volatility of the average option on the individual stocks in the U.S. option market. The implied volatility of an option is a measure of both the upside and downside uncertainty about the future of the company on which the option is written. So, changes in implied volatility can be used to understand uncertainty about the future of stock prices, and how that future uncertainty reacts to news flow.
For more information about the MVI and Morningstar's option research methodology, I'd encourage you to download the free Morningstar Guide to Option Investing.
Broad Market Uncertainty
U.S. equity markets continued a trend of easing uncertainty, with the Morningstar Volatility Index falling by 3% for the week to an MVI of 69%. The calming came on Thursday when average implied volatility fell by 5 percentage points, driven by major calming of financial services uncertainty.
Sector Trends
The service super sector continued to calm, as implied volatility dropped by 8% to 77%. This trend continued to be driven by reduced uncertainty around financial services companies, where implied volatility fell by 6% to 97%.
Uncertainty was flat in manufacturing at 68% as continued increases in consumer goods manufacturing uncertainty throughout the week can be attributed to uncertainty around the automaker bankruptcy process for Chrysler and GM (GM), as well as the announcement of dealership cuts and the subsequent inventory absorption effect. Implied volatility in the consumer goods manufacturing business rose throughout the week by 12.5% to a high of 125%, only to fall at the close this expiration Friday up 3% at 113%.
The information super sector continued its slight easing of uncertainty, with easing in information, software, hardware, and media offset by increases in telecommunication. Implied volatility for information companies fell by 4% to 46%
Size and Value
Uncertainty eased across the size spectrum to 69% and 71% for large and small cap, respectively. Volatility also eased evenly across the growth-value spectrum to 95% and 48% for value and growth, respectively.
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