(Bloomberg) -- Options markets that have been placid for the first half of 2024 are showing little sign early Monday of being roiled by the failed assassination attempt on former President Donald Trump, with 10-year Treasury volatility edging higher and VIX futures lower, while gold and the dollar were little changed.
The backdrop is one of relatively low volatility in not just the S&P 500 Index but traditional havens such as the greenback, gold and Treasuries. Stocks have been churning steadily higher on the back of megacap technology firms, with almost 350 days without a single-day drop of 2% in the S&P 500. That’s made hedging less attractive as puts expire worthless month after month.
In early Asia trading, July VIX futures slid to 12.8 from 12.83, with the premium for the October contract — which measures volatility in S&P 500 options around the US election — also slipping along with the rest of the curve through year-end. November and December contracts have at times been boosted by concerns the vote would be contested.
“Because the attempt fortunately failed, I don’t think there will be much lasting impact on markets” said Steve Sosnick, chief strategist at Interactive Brokers. “Perhaps the bump in October - December VIX futures grows because of election and post-election uncertainty, but that’s the only lasting effect we’re likely to see in the near term.”
The bump in the curve around the October contracts has held largely steady and, if anything, has been flattening since it began trading in late January. While that largely reflected the early determination of the candidates for each major party, even the recent talk about a potential Democratic Party replacement candidate after President Joe Biden’s poor debate performance hasn’t really moved the spreads.
Even as gold has headed back near record highs, its three-month implied volatility and skew have been holding in a narrow range, and they were little changed early Monday in Asia. One interesting note: the biggest increase in Comex gold options positioning over the past week was in June 2025 $3,000 calls, where more than 3,200 contracts were added.
In the US Treasury market, options volatility on September 10-year Treasury futures has bounced off Friday’s lows after sinking for the most part of the year.
“The key is to watch the Treasury market,” Sosnick said. “If the yield curve steepens without an economic number, then that indicates the market believes this helps Trump’s chances.”
The dollar’s volatility against the euro has also been falling with the US currency, though the dollar index tested support at the 200-day moving average.
Elsewhere, the premium to hedge for dollar-yen downside over the next month compared with its upside has risen with speculation that the Bank of Japan may intervene to support the yen should it weaken further. The currency pair’s implied volatility has also climbed in shorter-term tenors as investors factor in not only MOF intervention risks, but also risks posed by events including an interview of Federal Reserve Chair Jerome Powell later on Monday, US retail sales on Tuesday and Japanese consumer prices on July 19.
--With assistance from David Finnerty.
©2024 Bloomberg L.P.
