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VIX and Volatility General Discussion


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VIX and Volatility General Discussion

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  #71 (permalink)
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suko View Post
I think the mail in ballot issue may make the vol play on this election much different from last time.

One wants to assume that the M1 M2 bump does not come out of the term structure on election night, but maybe it won't. I can imagine it might even get bigger if the outcome is in doubt due to mail-in.

There are numerous ways to trade this event through the vol complex. One of which is relative value.

If I were to express such a view looking at the spread between M1 and M2, I would probably trade the futures spread instead of using options. To reduce risk, I would probably look at trading spreads in further dated months. The beta of this spread position relative to spot vix will be lower.

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  #72 (permalink)
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The election results will come in after the market is closed but the VX futures may be trading at that hour. VIX options do trade late at night but are not accessible to retail.


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  #73 (permalink)
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Cogito ergo sum View Post
Election risk has been priced in cross-asset.

i don't know about the other assets but in VIX the election premium has been there for months. It looks more obvious in these charts as they show M1-M2 rather than U20-V20.


suko View Post
I think the mail in ballot issue may make the vol play on this election much different from last time.


suko View Post
The election results will come in after the market is closed but the VX futures may be trading at that hour. VIX options do trade late at night but are not accessible to retail.

A discussion point I am seeing more and more is related to this but even more extreme. "In 14 states including some battlegrounds officials can't even start authenticating early mail-in ballots until Election Day, much less begin tabulating them.*". We will not know the final result of the election until DAYS AFTERWARDS. Given that Democrats are assumed to favor mail in ballets more than Republicans, a possible scenario is that on election night Trump is heavily in the lead, but day by day that lead is whittled away as more and more mail in votes are counted. The uncertainty actually increases as things get closer and closer, and then finally on Election Day + X the final result is what? Market volatility in the days following the election could be significant as the estimates swing day-by-day.

Food for thought/Recap: In 2016 the stock market was down 5% overnight before closing up 1% at the end of the day.

* https://www.nbcnews.com/politics/2020-election/do-not-open-until-election-day-state-laws-will-delay-n1238806

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  #74 (permalink)
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SMCJB View Post
i don't know about the other assets but in VIX the election premium has been there for months. It looks more obvious in these charts as they show M1-M2 rather than U20-V20.


To be honest, the chart in question is actually labelled as M2-M1. The spread is adjusted on a rolling basis.

The current shape of the VX forward curve offers some interesting opportunities for relative value trades.



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  #75 (permalink)
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Jay Wohlberg:

"Oct VIX futures are still elevated and have been since March. The backwardation structure doesn't necessarily suggest increasing volatility and since spot VIX is lower than Oct Vix futures, I think Oct Vix futures drops towards spot VIX."

So, all things being equal, that means 5 points have to come out of the OCT futures in the next month to get to a VIX of 25.

To put that in perspective, let's remember that the normal case is about 2 points after expiry and between the new front month and spot VIX. This is vastly greater. I've never seen this before since I started following VIX.

So, what's your play for this?


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  #76 (permalink)
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The NOV future must necessarily increase from here on out, too. OCT rolls off two weeks before the election, and the tension is just gonna be starting to ratchet up immensely then. The outcome of the election may not be known until after NOV rolls off on the 17th. So that means NOV will be elevated right till expiry. DEC will also be affected.


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  #77 (permalink)
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No sooner did I write that about NOV increasing than it jumped up to the same level as OCT.

I am beginning to believe that I am getting pretty damned good at reading the VIX term structure.

If you read what I wrote yesterday and took action to get long NOV, you made some money.


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  #78 (permalink)
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The ratio of 60-day constant maturity ATM implied vol for 10 Yr vs. S&P 500 appears to be a bit cheap on a historic basis.


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  #79 (permalink)
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Somebody was talking about bond vol vs gold vol also. I don't play this pair.


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