🧐 ProPicks AI October update is out now! See which stocks made the listPick Stocks with AI

Is the VIX signaling another volatility spike is coming?

Published 09/26/2024, 09:14 AM
© Reuters.
US500
-
VIX
-

Investing.com -- The CBOE Volatility Index, or VIX, often referred to as the "fear gauge," is showing signs of another potential spike in market volatility, according to the latest Sevens Report.

After surging above 60 in early August, the VIX has since fallen sharply and currently sits around 15.

Despite this decline, Sevens cautions that ignoring the VIX could be a mistake as the index is now trending higher, forming a series of higher lows, which hasn't been seen since late 2021, a period that led to significant market turmoil.

In addition to the upward trend, Sevens Research highlights the unusual term structure of VIX futures. "The VIX futures curve is in backwardation," the analysts explain, meaning the October contract is trading at a premium to the November contract.

This is a rare development and suggests derivatives traders are positioning for a significant increase in volatility in the coming weeks, according to Sevens.

They explain that typically, longer-duration contracts trade at a premium to shorter-duration ones due to the increased risk over time.

However, the inversion seen here implies that traders expect a spike in volatility before the October contract expires on October 16th.

The report advises watching for three key developments: a rise in the VIX index above the 24 level, a normalization of the VIX futures curve (which would be bullish for stocks), or a widening premium between the October and November contracts.

If the latter occurs, it "would indicate rising risks of a selloff that could send the S&P 500 back to the early September, or even early August lows," concluded Sevens.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.