And VXJ7 expires on 4/19, doesn't it - so what's up with that? Why don't we see K cranked up instead, especially given that the election theoretically *could* extend into May?
unusual VIX term structure
- Thread starter ajensen
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And VXJ7 expires on 4/19, doesn't it - so what's up with that? Why don't we see K cranked up instead, especially given that the election theoretically *could* extend into May?
As was pointed out elsewhere, the futures expiring in Apr have underlying of the "spot" VIX which is actually calculated on option prices with average about 30 DTE from the future's expiry. And May futures are really on the 30-day forward volatility from the future's expiry in mid May, about 10 days/2 weeks after the election.
I'm confused. Why would K be cranked up? The election is on the 19th. Think of it as an earnings announcement. After the stock reports, vol gets crushed. Would would anything after J be bid up?
Am I taking crazy pills or something? The first round of election is on Sunday the 23rd, just as you said previously. Top candidates then have a run off on May 7.
All well and good from a *theoretical* standpoint.
Am I taking crazy pills or something? The first round of election is on Sunday the 23rd, just as you said previously. Top candidates then have a run off on May 7.
All well and good from a *theoretical* standpoint.
Yes, I understand that. But let me give you my perspective. The market hates uncertainty. The market likes certainty even if the certain outcome is bad. After the first round, if there is no majority which there probably won't be, the top two candidates will be in the runnoff. Odds are heavily favoring Macron and LePen in the runnoff. This automatically reduces uncertainty as there are now only two choices vs I believe 8 or so now. In the runnoff, there is a much less chance of a surprise as there would be in the first round. The second round heavily favors Macron's chances. Either way, if I was a vol buyer on this event, I would absolutely NOT want to be long vol into the 2nd round. The odds of an upset go almost to zero. The first round is crazy though. Because with so many candidates running, the top two finishers will more then likely only slightly beat out the 3rd and 4th place candidates. This is going to be VERY close. You COULD see the communist candidate Melenchon squeak by LePen and move into 2nd place. There is literally just one or two percent separating them and he is surging now.
The actual oddsmakers heavily favor Macron though and from a market's perspective, if there is a runnoff and Macron is in that runoff, he will win overwhelmingly. Or so the market thinks. I'm not telling you who is going to win, just explaining the math and the probabilities and how the market is likely looking at it. We will know in 9 days and will see how the curve reacts. But there is no question that the first round is the real uncertainty here. Technically, you could get two extreme candidates in the runoff by a slither of a margin and one of them will have to win in the runoff.
VXJ goes off wed morning..then VXK (May) should catch the bid for at least 2-3 days
Yep, this is what I've been saying. VXJ7 is done on 4/19 (Wednesday). The first round of election is on 4/23 (Sunday).
I understand the connection to 1 month forward vol and all that, but in the case of US elections, the front month VXX6 was still bid up (in a somewhat similar fashion), whereas VXV6 was not (where's the 1mo forward vol connection there?).
I mean if it were that easy as "once the election is over we're back to contango", then we should all be 1000 lots short VX KM, or VX KMN, right?
Huh? Why? They already discounted the K and M contacts. You mean buy them right?
Guys, this is a Bayesian math problem. It's the first question you get in an interview to be a market maker at Susquehanna.
first of all, since the events are near , the buyers bid up the nearest contract and to a much lesser degree the contracts as you go out (K,M, etc)
after this first round of the french election; this is no certainty contango will return; but that would be a solid common sense expection. i happen to be long VXK as part of a futures fly; with no intention of holding past next friday.