Increased Expectation for Presidential Election Volatility
Newly-listed volatility futures contracts are indicating heightened anticipation of increased stock market turbulence surrounding the upcoming US presidential election in November. This suggests that investors are already taking note of the potential impact of the vote on the markets.
October Futures Trading Higher Than September Futures
The October futures on the Cboe Volatility Index (VIX) began trading on Monday and are currently at 20.65, which is 3.2 points higher than the September futures. Notably, this is the largest gap observed between consecutive months on the VIX curve. Despite the election being months away, some Wall Street experts are already analyzing how the markets might be affected.
Possible Reasons for the Gap
Market participants believe that the significant disparity between the September and October futures could be attributed to expectations of election-related volatility as well as the usual seasonal fluctuations. Although the October futures expire in mid-October, they encompass S&P 500 options contracts that extend until the middle of the following month, making them sensitive to market movements around the November 5th vote. The current level of the VIX stands at 13.29.
Historical Context of October Surprises
In the realm of US politics, October is renowned for late-cycle news events known as ‘October surprises,’ which have historically had an impact on presidential campaigns. However, their effects on the markets have been varied. Notable examples include the release of a 2005 tape where Donald Trump made controversial remarks about women in October 2016, as well as news that the FBI was investigating additional emails related to Hillary Clinton’s use of a private email system during the same month.
Favorable Trading Volume for October Futures
The newly-launched volatility futures contracts have garnered significant trading volume, with approximately 3,200 contracts traded thus far. This level of activity surpasses the volume recorded for newly-issued contracts for other months, underscoring the market’s attention to and engagement with the October futures.
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