Volatility rose as we approach Tuesday’s big decision. VIX gained almost 40% and the November contract moved up 16% which placed the short end of the curve in backwardation. One other thing I’d like to point out below is the ‘dip’ that is the December contract. Due to the Holidays there is a seasonal impact on the curve, however, this is the first weekend this stood out this much.
One trader is expecting the dust to clear and VIX to fall rapidly to normal levels. Friday, with VIX at 21.25 and the standard November VIX contract around 18.75 there was a buyer of the VIX Nov 16 Puts at 0.84 who then also sold the Nov 15 Puts for 0.47 and a net cost of 0.37. VIX returning to 15 or lower will result in a profit of 0.63. Probably the biggest fundamental risk is an undecided election a week after it should be settled.