VIX makes its final pre-election separation

BY ANDREW GIOVINAZZI

November 3, 2024

If some of my Option Volatility Jargon is avexing, our Glossary is here.

AG’s alter-ego Vol Man here with my weekly analysis. As usual, I will start with my last forecast…

Last Week:

“SPX 5900 top even with great tech earnings next week. Unless there is an October surprise I expect VIX to rally a bit, and SPX to try and make runs to 5900. More orbiting action until the 6th.”

So I give myself a B+ rating. 5900 top held and with highs of 5850, SPX stayed flat, dropped and rallied almost all of the drop before losing steam into the close aka orbit. VIX rallied a bit to close the week in the low 20s.

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DJT is still leading the betting markets but MSM has Harris polling ahead. The market wants DJT given the price action but the MSM does not. This was a strange week where Jeff Bezos called out the WAPO for only writing to half an audience. Some ballot irregularities surfaced and any news like that will only get covered by part of the media,namely the online media groups which are running away from MSM viewership. The list goes on and only adds to the hype over the election.

Big Tech made big money but all have high valuations. Amazon.com Inc (Ticker: AMZN) was the only stock that is close to all time highs. The growth from the top end of the QQQ will be tough at this point. It does not mean they cannot rally but it is not easy at 30x P/E. The NFP was bust likely due to hurricanes since part of the country was closed down for 2 weeks. The tone of the market is still up but VIX wants to rally too. Below is why.

SPX daily price action over the last 30 days with 1 day candles

SPX Sigma (volatility per term) for Nov, Dec, Jan

SPX held up in a range all week only to sell off with Microsoft Corp (Ticker: MSFT) and Meta Inc (Ticker: META) values post earnings. Implied vols tracked by Sigma jumped all week as election uncertainty crept back in. Note the Sigma Vols hit the high tick for the last month or close to it. Stocks still want to rally but the election uncertainty messes things up.

SPX realized volatility snap on Nov 01, 2024

Realized volatility for 10 days is now 10.94% with VIX at 21% This separation of volatility is historic with SPX near an all time high. One way or another it will get back together. That is the Special Situation we will cover next week.

VIX Volatility Curves

Closing VIX curve, Oct 25, 2024

Closing VIX cash and curve, Nov 01, 2024

The election premium is in the Nov VIX future and VIX cash is above 20. Super flat term structure indicating VIX moves are likely large between now and the Nov20 expiry date. The only difference from last week is VIX is higher all across the term because SPX cranked out a larger move on Thursday.

Basic Vol 101 on our Option Pit YouTube channel

OP VIX Zone Watch

VIX ZONE 1 9-13

VIX ZONE 2 13.01 TO 17.99

VIX ZONE 3 18-23.99 We are here

VIX ZONE 4 24<

VIX stayed in Zone 3 all week and slowly moved down but popped to 20 again. More rotating action and likely to stay that way with VIX eventually getting to a 24 or higher by Nov 04th. Same write up now for 3 weeks here.

VIX 30 day chart with 1 min candles,

I expect the sentiment to get downright Halloween Spooky as we get closer to Nov 06th. The campaign rhetoric is fired up so that it just keeps pushing VIX higher since depending on who you look at it will be the end of the USA as we know it. VIX is pricing a known event day, and that day will pass.

The Big Call

SPX 5950 or 5600 by the end of the week. VIX should settle around 16 by Friday. My hope of course is everyone involved follows the election laws regardless of party but hope is not a trading word I like to depend on. Expect a violent SPX move and sharp VIX decline because one way or another the election will be over.

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