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

Investors are seeking greater protection against stock-market swings as September and October approach, months when Cboe’s VIX volatility index has typically risen after midyear declines. The VIX, often called Wall Street’s “fear gauge,” measures expected S&P 500 volatility over the next 30 days through options prices. It generally rises when investors become more anxious and seek protection against sharp moves. Options protecting against a volatility increase over the next three months have become unusually expensive. Nomura’s Charlie McElligott said the VIX three-month call skew is in the 91st percentile of its historical range, meaning it has been more expensive only about 9% of the time. The seasonal pattern coincides with several potential catalysts: upcoming U.S. midterm elections, interest-rate risk linked to oversupply dynamics, hawkish central-bank impulses and an escalation in Middle East hostilities. McElligott described these pressures as a “negative risk trinity” and said equity investors “now have something to hedge against” after bringing cash back into the market. Luke Rahbari, CEO of Equity Armor Investments, expects higher equity-market volatility in both directions toward year-end as rate expectations shift and cross-asset pressures build. He also said stress in the Treasury market is showing signs of spilling into stocks. The MOVE Index, which measures expected Treasury-market volatility, remains elevated as bond investors reassess interest rates, inflation and the supply of U.S. government bonds. However, CreditSights said both the MOVE and VIX are near their 10-year averages, while corporate credit spreads remain historically tight. Those spreads represent the additional yield investors demand to hold corporate bonds rather than government debt. Zachary Griffiths, CreditSights’ head of investment-grade and macro strategy, expects volatility could increase as markets leave the quieter summer period. James Ooi, market strategist at Tiger Brokers, said volatility typically declines in November, with the VIX falling about 4% on average as midterm-election results reduce political uncertainty and clarify the policy outlook.