Now that the biggest year-end "tail risk" - the Nov 3 election - is in the rearview mirror, the November VIX term structure "kink" is gone, with the Nov contract having collapsed from 29 a month ago to 22, a level that's even below the latest spot.
Yet a look at the latest VIX term structure indicates that more pain may be ahead.
In fact, as Goldman derivative strategist Rocky Fishman writes this morning, the VIX has a new "event" nemesis: the Georgia runoff elections.
As Fishman writes, the current 50-48 Senate split, pending runoff elections in Georgia, leaves uncertainty about the control of the Senate until January 5. As shown below, option markets have priced a small rise in volatility in the 8-Jan weekly expiration, "and currently the December VIX future is not showing its typical (holiday-driven) sag vs. the November and January VIX futures, also indicating elevated early January volatility."
That said, since the balance of power in the Senate is not binary, however, since the size of a Senate majority matters as well, Goldman sees only limited potential for actual event-driven volatility. Nevertheless, as Fishman concludes, "this event is one reason the December VIX future may find it hard to fall much even if SPX realized volatility declines substantially."