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October futures on the Cboe Volatility Index started trading on
Monday and were recently at 20.65, some 3.2 points higher than
the September futures. The gap between September and October is
currently the largest for any two consecutive months of the VIX
curve.
Though the vote is still many months away, some on Wall Street
have already started gaming out how markets might be impacted by
the election, which is increasingly looking to be a rematch
between Republican challenger Donald Trump and President Joe
Biden, a Democrat.
Joe Tigay, portfolio manager for Rational Equity Armor Fund,
said the "sizeable" gap could be reflecting expectations for
election-based volatility as well as seasonal gyrations. While
the 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 bets on market moves around the
Nov. 5 vote.
The VIX historically tends to be elevated in October, with the
so-called fear gauge logging an average monthly reading of 21.8,
the highest of any month. It currently stands at 13.29.
In U.S. politics, October is known for late-cycle news events -
dubbed 'October surprises' - that have in the past shaken up
presidential campaigns, though their effects on markets have
been varied.
Recent ones include the October 2016 release of a 2005 tape
where Donald Trump made lewd comments about women and news that
same month that the FBI was investigating more emails as part of
a probe into Hillary Clinton's use of a private email system
that same month.
With about 3,200 contracts traded, volume in the fledgling
contracts has so far outstripped newly-issued contracts for
other months.
For instance, the August and September futures drew trading
volume of less than 10 contracts in their respective first weeks
of trading.
"This is obviously unique because it captures the election,"
said Chris Murphy, co-head of derivative strategy at Susquehanna
Financial Group.
(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and
Nick Zieminski)
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