The first round of the French Election occurs this coming weekend and the implied volatility of broad based options in Europe is taking notice. The European version of VIX is VSTOXX which is based on Euro Stoxx 50 Index options. Today VSTOXX closed over 24.00 as Euro Stoxx 50 options are pricing in high volatility over the next few weeks in anticipation of the market’s reaction to the French Election.
The VSTOXX futures market also (correctly) anticipated a rise in VSTOXX this week. For some time, the April contract, which expired earlier today, traded in the mid-20’s. In fact, for all of 2017, regardless of what spot VSTOXX did, the April contract remained in the mid-20’s. The chart below compares daily closing prices for VSTOXX and the April futures in 2017. Note as expiration got closer, spot VSTOXX moved up and matched prices which the April contract.
Even the Dutch election result, which caused a one day VSTOXX crush didn’t influence the April futures. Normally, when the futures are at a premium to a spot volatility index the futures gravitate lower. In this case, with the known unknown approaching VSTOXX moved up to the futures contract price.