The market has experienced a whirlwind of news this week, including assassination attempts, potential changes in presidential candidates, global technology outages, and mixed economic data that indicates a “resilient” consumer but a weakening labor market. Amid these events, attention shifts to the VIX futures curve, offering traders insight into expected volatility over the coming months following a seasonally strong July.

As of this morning, the VIX curve is in backwardation when comparing the spot VIX to the August VIX (/VXQ24) futures contracts. Backwardation occurs when front-month contracts or spot market prices are higher than those of further-dated contracts, signaling near-term uncertainty and potential heightened volatility, as observed in recent trading sessions. Typically, the VIX futures curve is in contango, meaning that further-dated contracts trade at higher levels due to greater uncertainty over time. If backwardation persists, the market should prepare for continued choppy action as several technical levels have been violated.

Another key factor to monitor is the October VIX (/VXV24) contract, which has been trading at elevated levels compared to near-term and further-dated contracts, pricing in the upcoming election. Despite the uncertainty, the contract is pricing in a daily implied move of approximately 1.13%, which some may argue is relatively low given the circumstances. Additionally, the January 2025 VIX contract (/VXF25) has recently started to price in heightened volatility, coinciding with the congressional certification of the election and the inauguration—an event not previously priced in before this week.

Unless the VIX begins to normalize, near-term market volatility may persist. Keep an eye on the long end of the curve to gauge institutional pricing and hedging due to event risk.

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