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The VIX Has A New “Event” Nemesis

ZeroHedge News

The VIX Has A New “Event” Nemesis

Tyler Durden

Wed, 11/18/2020 – 10:05

Now that the biggest year-end “tail risk” – the Nov 3 election – is in the rearview mirror, the November VIX term structure “kink” is gone, with the Nov contract having collapsed from 29 a month ago to 22, a level that’s even below the latest spot.

Yet a look at the latest VIX term structure indicates that more pain may be ahead.

In fact, as Goldman derivative strategist Rocky Fishman writes this morning, the VIX has a new “event” nemesis: the Georgia runoff elections.

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As Fishman writes, the current 50-48 Senate split, pending runoff elections in Georgia, leaves uncertainty about the control of the Senate until January 5. As shown below, option markets have priced a small rise in volatility in the 8-Jan weekly expiration, “and currently the December VIX future is not showing its typical (holiday-driven) sag vs. the November and January VIX futures, also indicating elevated early January volatility.”

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That said, since the balance of power in the Senate is not binary, however, since the size of a Senate majority matters as well, Goldman sees only limited potential for actual event-driven volatility. Nevertheless, as Fishman concludes, “this event is one reason the December VIX future may find it hard to fall much even if SPX realized volatility declines substantially.”

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