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VIX Is Low, Futures Are High and Macro Risk Sees Opportunity

Joanna Ossinger
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VIX Is Low, Futures Are High and Macro Risk Sees Opportunity

(Bloomberg) -- The divergence between short and long-term volatility is creating an opportunity for investors, according to some market participants.

The Cboe Volatility Index, or VIX, closed at a three-month low Wednesday, part of a trend of lower price swings across asset classes. It was at 12.41 as of 11:01 a.m. Friday in New York versus its year-to-date average of about 15.9. At the same time, futures on the gauge remain at elevated levels as investors factor in U.S.-China tension, an uncertain economic outlook and a presidential election involving candidates with extremely divergent views.

“We see a tactical opportunity in the short-term to capture a further sell-off in VXX,” said Maxwell Grinacoff, strategist at Macro Risk Advisors, in a note Thursday, referring to a short-term volatility-focused exchange-traded note. Similar levels of futures curves in the past have led to VXX declines, and the market can continue to trade range-bound around all-time highs with so little of earnings season left, he wrote.

Grinacoff suggests the best way to capture the curve’s “rolldown” -- the move of futures toward the level of the spot price as they get closer to maturity -- is to buy put-option spreads on the VXX, the iPath Series B S&P 500 VIX Short-Term Futures exchange-traded note, according to the report.

Longer-dated volatility pricing has been impacted by concerns about next year’s U.S. presidential election. Predictions of an equity sell-off if a particular candidate is victorious don’t have a good recent track record, but top-tier Democratic candidate Elizabeth Warren is prompting particularly dire warnings from the likes of Paul Tudor Jones and Steve Cohen. RBC, on the other hand, says it might not be as bad as all that.

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“Investors want exposure to the broad markets, but still want to reduce risk around potential market uncertainty,” a Cboe spokesperson said via email. “We’ve begun offering October 2020 and November 2020 SPX expirations, based on what we’ve heard from customers about expected volatility around the primary elections next year.”

--With assistance from Rita Nazareth.

To contact the reporter on this story: Joanna Ossinger in Singapore at

To contact the editors responsible for this story: Christopher Anstey at, Cormac Mullen, Margo Towie

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