JPMorgan Isn’t Sure Why VIX Curve Has Notable December Bump

The Cboe Volatility Index’s futures curve jumps higher in December, and JPMorgan Chase & Co. strategists aren’t sure that makes sense.

Some analysts have flagged the possibility of bets on market swings shifting to December over concerns about a disputed U.S. election result. President Donald Trump has questioned the credibility of this week’s vote and launched lawsuits.

The December maturity is now the highest point on the curve, but JPMorgan strategists Peng Cheng and Thomas Murphy said it’s not clear that next month’s expiry has more exposure to the risk of a contested outcome.

“It is not obvious to us why the December futures would command such a premium,” they wrote in a note Thursday. The deadline for states to certify election results is Dec. 8, which “falls outside of the Dec VIX futures coverage,” they added.

Volatility markets have been a focal point for investors seeking to hedge various U.S. election outcomes and there was a bump in the VIX futures curve in October and November in the months leading up to the election. The week before, as Democratic nominee Joe Biden held a healthy lead over Trump in the polls, investors started betting on a decline in volatility -- which has come to pass.

JPMorgan Isn’t Sure Why VIX Curve Has Notable December Bump

Factoring in the holidays contained in the December period makes the contract look even more expensive, the JPMorgan strategists said.

They recommended investors take advantage of the dislocation in the curve by rolling any short VIX exposure to December from November.

©2020 Bloomberg L.P.

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