See you April Joyner
NEW YORK, Nov. 3 (Reuters). Investors are pulling back on expectations for big swings in US stocks as they look for a decrease in market uncertainty after election day.
The Cboe Volatility Index, Wall Street’s “fear measure,” fell Tuesday as the S&P 500 rose nearly 2%, partly in anticipation of a clear presidential election result.
At 35.25, the VIX is still trading well above its long-term average near 20, meaning more than 2% movement for the S&P 500. In addition, options on the SPDR S&P 500 Trust, an exchange-traded fund that serves the US Benchmark tracking According to Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group, the stock index will price in a move of 3.5% by the end of the week.
However, some signs are showing that investors expect the volatility to subside in the rearview mirror after the election. The maturity structure for VIX futures is reversed, as short-term contracts trade at higher prices than longer-term contracts – a sign that investor fear is strongest in the short term.
The VIX maturity structure was partially reversed in the 2016 elections, wrote Michael Purves, CEO of Tallbacken Capital Advisors. Following this election, the VIX collapsed and the maturity structure soon returned to its typical uptrend – a sign of an alleviation of short-term market concerns.
The term structure may not be returning anytime soon this time around, Purves wrote, amid other lingering concerns like the novel coronavirus pandemic.
Even so, option activity suggests that some investors have positioned themselves for greater calm in US stocks. VIX Puts traded at higher volumes than VIX Calls last month, which is different from the norm. VIX puts are used to reduce volatility, while VIX calls are used to protect against rising volatility.
“Sentiment seems to have changed from a volatility perspective,” said Andrew Thrasher, portfolio manager for the Financial Enhancement Group.
(Reporting by April Joyner; Editing by Ira Iosebashvili and Dan Grebler)