Ah… the month of October. Where everyone is back from their summer holidays and traders try one last time to make their budget before the banks shut down for year-end and merry-making into Christmas.
If you look back into history, Oct is usually a volatile month for most asset classes. Remember Black Monday? It was in Oct 1987. Most stock market bubbles burst during this month too.
But it is different this year. The market has been very subdued the whole of this month and prices hardly moved. One big factor that is causing this inaction is the US Presidential elections. Given that it is on 08 Nov and that we have had an unusual anything-goes (plus new lows being achieved…) campaign, traders aren’t too sure where the pendulum will swing, hence the caution.
I have been long volatility via VIX for a long time and getting hammered. It seems like a favourite trade of hedge funds is to sell volatility as a carry trade and to make some side income. This has helped to suppress overall volatility in general.
Pundits are now calling for higher volatility into year-end as the elections are completed and the chances of the Fed hike in Dec increases. They last hike rates in Dec last year.
It’s not a sure thing, so don’t hold your breath on this, though.
Leave a Reply