'Fear gauge' VIX is starting to attract hedges into historically volatile part of calendar

• Both VIX and MOVE indices are around their 10-year averages, while corporate credit spreads remain historically tight, suggesting potential for increased volatility as markets exit the summer slowdown
• Equity investors are hedging against a 'negative risk trinity' of election uncertainty, interest-rate risk from oversupply dynamics, and hawkish central bank policies
• Volatility is expected to ease in November, with VIX typically falling around 4% after midterm elections remove political uncertainty and provide policy clarity

Summary: VIX "Fear Gauge" Draws Hedging Activity Ahead of Volatile Season

The Cboe VIX volatility index is experiencing increased hedging activity as markets enter a historically volatile period. September and October typically see the largest VIX jumps following mid-year lows, prompting investors to seek protection.

Key Drivers of Heightened Volatility:

• U.S. midterm elections creating policy uncertainty
• Interest-rate risk from oversupply dynamics and hawkish central bank positions
• Escalating Middle East hostilities
• Nomura's Charlie McElligott identifies a "negative risk trinity" of risks

Market Data:

• VIX three-month call skew sits in the 91st percentile, indicating relatively expensive hedging costs for equity volatility
• Both VIX and MOVE Index (Treasury volatility measure) are trading around their 10-year averages
• Corporate credit spreads remain historically tight

Expert Perspectives:

Equity Armor Investments CEO Luke Rahbari notes VIX and MOVE are "signaling very different stories about risk across markets," with Treasury market stress beginning to spill into equities. He anticipates "higher equity-market volatility—both upside and downside" as rate expectations shift toward year-end.

CreditSights' Zachary Griffiths suggests volatility may rise further as markets emerge from the summer slowdown.

Outlook:

Tiger Brokers strategist James Ooi projects potential relief in November, with VIX historically falling around 4% post-midterm elections as political uncertainty clears and policy clarity improves.

Equity investors are returning cash to markets but now face multiple catalysts requiring protection, driving demand for volatility hedges during this seasonally turbulent period.