Putting the front month VIX vs 1m realized vol on the SPX disconnect into context...current ratio is more that 3 to 1. Over the last 10 years, above 3 only three other times...
there's been some movement in markets but even the high/low range today was just 1%...you'd have to time re-hedges pretty well to eke out the theta.
the gravitational pull for Dec vol is lower given just how challenging these options are to carry. However, it's also worth asking "what's up?" with these prices. They likely speak to a number of factors...
1) a shortage of risk-bearing capital in US index vol 2) a deterioration in liquidity (vol and liquidity are in some ways inverses of one another). This has been quite evident in the risk-free asset itself
3) unwelcome stock/bond correl dynamics, leaving portfolios that lean on risk mitigation from duration more exposed 4) related to 2 and 3, if duration no longer does the trick, then actual option based insurance needs to be owned, increasing its clearing price.
On the last point, not a ton of evidence in flows that hedging demand is way up, but “lit” listed options markets are just one part of the mosaic.
In summary....since 9/1, SPX up 4% and UX1 up 3 points even as realized vol is around 11. Something's different.
In summary....since 9/1, SPX up 4% and UX1 up 3 points even as realized vol is around 11. Something's different.
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