Early this month I warned a VIX hike was likely coming. Here is what I said: By the way, the fear index VIX is sending a big warning sign for the next 3 weeks. As I said before, the VIX call/put ratio tells us a lot about what it is heading. For next week, the VIX call is priced in 8 times more than its put, 12 times more in the week after and then 15 times more in the last week of Oct. If you love to chase the market, be aware of this as this indicator is pretty accurate in its prediction. As we all know, a high VIX is usually associated with a lower market. We have seen times and times again that VIX can jump 50% with a blink of eyes. Well, it turns out to be right again. VIX nearly doubled this week from low 20s to almost 40 within days and the market got hammered hardly as well. The VIX indicator proves itself once again for its fortune teller ability.
So what VIX futures are telling us now? See its cure below, which tells how VIX traders are seeing the future in the remaining of the year through next year.
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Typically, you would expect that the VIX futures curve should go upward from left to right, given the insuring cost against volatility should be more expensive further out in the future. That's natural in a normal situation. But right now, investors are paying more for near-term insurance - specifically for around the election. As you can see, VIX futures are priced at the 30-33 level from Nov to Jan and then trends down consistently afterwards. This means, traders are quite nervous for the next 2-3 months, in line with what I'm also believing. This nervousness is not about who will win the election. Instead, they're worried about the potential for a delayed or inconclusive election result in November.
The high volatility the passing week is just a preview of what may be coming after Nov 3. Potentially it can jump even much higher or even challenge the Mar highs at its extreme. Again, don't be complacent!!
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