After the most volatile year on record, strategist sees more to come

The market is ending a wild 2018 with an even wilder December.

The S&P 500 has averaged a daily range of 2 percent for the month, while the Dow Jones Industrial Average has closed with triple-digit moves in all but three sessions.

Big moves have pushed the VIX to a record 13 one-day moves of more than 20 percent this year.

The options market is warning that these wild swings could stick around, says Mandy Xu, director of equity derivatives strategy at Credit Suisse.

“The biggest move in the options space actually is not in the VIX, which everyone looks at, but in longer-dated options this time around, compared to, say, October,” Xu said on CNBC’s “Trading Nation” on Thursday.

While the VIX measures one-month implied volatility, the longer-dated options track implied volatility over longer multi-month stretches.

“The implication is actually quite important,” said Xu. “What the market is telling you is that unlike in October — where the VIX went up, but markets were saying we should see a quick normalization in volatility, volatility should normalize two, three, six months out — right now the market is saying that actually volatility is likely to stay elevated in this current range for the next few months.”

Xu says the change in implied volatility reflects the shifting risks that investors expect in the New Year.

“In October, I would say the risk back then, the risk that everyone was focused on, was very much earnings,” said Xu. “This time around I think the risks that investors are focused on are not something that’s going to be resolved in a month or two.”

Worries over economic growth, uncertainty over how aggressive the Federal Reserve could be in hiking rates next year, and little progress in trade talks with China have muddied the market outlook, says Xu. Volatility should linger as those issues continue to pull the market in different directions.

The VIX has spiked since the beginning of October, rising by 76 percent to levels not seen since April.

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