As we edge closer to Election Day, one thing is certain…
Volatility isn’t going away. We’ve been tracking the VIX, which had been hovering around 19 for weeks now — this morning’s big 7.5% spike to 22 aside — and that elevated level reflects the market’s ongoing unease.
With major uncertainty tied to who will sit in the Oval Office next, the VIX — also known as the “fear gauge” — is sending a clear signal that investors should stay on alert for a big move. And, looking beyond the VIX, we see the same signals playing out in the volatility of volatility itself — the VIXX.
The VIXX, which tracks the expected volatility of the VIX, has been inching lower recently, showing that investors might be getting slightly more comfortable with the current market environment.
But it’s worth noting that this hasn’t resulted in any significant drop in the VIX, indicating the calm is surface-level at best. What we’re actually seeing is a tightening pattern that suggests a potential breakout for volatility — either up or down — as the election nears.
And we’re seeing this play out some this morning with stocks falling hard while the VIX itself spiked the 7.5% I mentioned above.
This “squeeze” on the VIXX could mean one of two things…
If certainty emerges from election results and the markets find relief, we might see volatility break to the downside, calming things a bit. However, if election outcomes defy expectations or drag on, the VIX could spike as traders and investors scramble for safety.
This kind of setup is especially important for sectors that thrive or suffer under political uncertainty. Think of health care, defense or tech stocks like Pfizer (PFE), Lockheed Martin (LMT), and Microsoft (MSFT) — these could all experience sharper moves depending on which policies gain traction post-election.
In the meantime, expect the VIX to keep hovering around these higher levels, likely staying elevated until the election results are clear. We’re in a unique position where, just like an earnings season for a major company, we know a significant event is on the horizon.
The challenge is that we don’t yet know the direction the market will take once results are in — only that a substantial move is likely. This puts options traders on high alert to exploit both up and downside volatility, positioning for large swings in either direction.
With this setup, one way to navigate these next few weeks is to consider trades that capture volatility without betting heavily on a single direction — especially when we know that any resolution, or further uncertainty, could push us out of this range.
Whether you’re looking at hedging existing positions or preparing to trade the VIX directly, it’s clear that the volatility squeeze is coming to a head.
As we approach election day, keep an eye on these signals — they’re telling us that this period of calm won’t last for long.
Kane Shieh
Kane Shieh Trading
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