Stock derivatives traders are starting to prepare for a possible pickup in volatility around the November U.S. midterm elections, even as investors keep their attention on Nvidia’s upcoming earnings and Federal Reserve Chair Waller’s speech at the Jackson Hole symposium. Traders tracking futures linked to the Cboe Volatility Index, or VIX, said there are signs that demand is rising for hedges against swings in the S&P 500 around the election period. That shift is showing up in the VIX futures term structure, with September contracts trading at about 17.4, October at 19, and November at 19.7. Matthew Thompson, co-portfolio manager at Little Harbor Advisors, said the market has entered the window in which the election can start influencing VIX pricing. A study by analysts at Cboe Global Markets also found that since 1945, 80% of midterm election years posted realized volatility above the prior year, with an average increase of 3.5 volatility points. In years when the White House and Congress were controlled by the same party, realized volatility rose by an average of 6 points.
Stock derivatives traders are beginning to position for a possible rise in volatility around the November U.S. midterm elections, according to ChainCatcher, even though Nvidia’s upcoming earnings report and Federal Reserve Chair Waller’s speech at the Jackson Hole symposium remain the main events on investors’ radar this week.
VIX futures curve is starting to steepen
Volatility traders watching the futures market linked to the VIX, often called Wall Street’s fear gauge, said there are signs that demand is picking up for hedges against S&P 500 swings around the election period.
September VIX futures are currently trading at about 17.4. October contracts have risen to 19, and November contracts are higher still at 19.7.
Matthew Thompson, co-portfolio manager at Little Harbor Advisors, said: "The U.S. election is coming up, and you’re starting to enter a time window where the election will have an impact on the VIX. You can already see that upward slope in the VIX futures term structure."
Historical study points to higher volatility in midterm years
A study by analysts at Cboe Global Markets found that since 1945, 80% of midterm election years saw realized volatility come in above the previous year, with an average increase of 3.5 volatility points.
In years when the White House and Congress were controlled by the same party, realized volatility increased by an average of 6 volatility points, the study showed.
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