As I write this the S&P 500 is up 40.00 points on the nose and volatility is dropping. I ran a quick update on different charts I have been using to discuss the markets and the election. All three appear to be saying despite the stock market rally, there’s still some uneasiness with respect to tomorrow’s election.
First, I’ve been watching the at the money implied volatility of SPX options expiring in November. We have options expiring on the close today, but IV doesn’t tell us much when there is less than a day to go so the chart below starts with the Wednesday November 9th SPX Options. Note that the IV for the Nov 9th options is higher than it was on the close Friday. You can attribute that to a combination of adjustment for a weekend of time decay along with event risk sticking around for the election. Note the implied volatility is lower for all other November series, but still relatively high when compared to before the election result become a little more uncertain.
Second, here’s a look at the VIX term structure from Friday versus mid-morning today. Volatility has dropped, but the shape is still in backwardation which is always associated with a high market risk environment. I haven’t had time to run the numbers, but I doubt we have ever had the S&P 500 up 40 points and the from month VIX futures at such a discount to spot VIX.
Finally, I updated the VXST – VIX – VXV – VXMT term structure chart I use each weekend. VXST is still much higher than the other three indexes, but note that longer dated volatility is still at elevated levels when compared to recent history.
It’s going to be an interesting couple of days and I’ll do my best to note changes in the markets that occur as we get a final decision with respect to who will be our next President and what the composition of Congress will be.