Risk assets can deal with more stormy conditions if the federal reserve reduces interest rates, as expected, on September 17. This is the message of term contracts linked to the VIX index, a measure of volatility expectations in the S&P 500 in the next 30 days.
The index, also called the Wall Street fear gauge, is calculated in real time from the prices of options on the S&P 500, and reflects the amount that investors expect the market to oscillate, with higher values indicating higher uncertainty levels.
The gap between the Vix of October VIX contract (the next month contract) and the September contract (the first month contract)Extended to 2.2%, an extreme level according to historical standards, according to Data Source TradingView. The September contract expires the same day as the Fed meeting.
Meanwhile, the first month contract is only negotiated a slight bonus in the cash index.
“The money is right compared to September … but seven. Is extremely low compared to October’s term contracts,” wrote Greg Magadini, director of derivatives of the Crypto Data Analysis company, Amberdata, in the weekly bulletin.
In other words, merchants update the risks before the Fed meeting, parenting that prices will maintain stable markets as the decision approaches.
The American central bank is expected to reduce its target rate by at least 25 base points upon meeting next week, according to the Fedwatch tool of the CME. Some market players are even positioned for a reduction of 50 BPS.
October’s term contracts, however, tell a different story, suggesting that investors anticipate increased turbulence once Fed’s decision is away and rate reductions are assessed.
“Future VIX for September assessed the risks while October could be ugly … A theme to keep in mind risk assets in my opinion,” wrote Magadini.
Historically, the VIX has shown a strong negative correlation with equity prices, generally increasing during the lower markets and periods of market stress, while decreasing when the equity prices are progressing. This means that the potential boom of volatility after the Fed decision could be marked by a drop in shares.
Bitcoin is known to closely follow the atmosphere of Wall Street, which means that a potential explosion of volatility in actions could quickly spread on the cryptocurrency market. And as actions, the turbulent period could be marked by a lower price action.
Since November of last year, the correlation between the Bitcoin cash price and its 30 -day implicit volatility indices has become negative. In addition, Bitcoin – Bviv and Dvol – have recently reached Record levels of Record with VIX, highlighting Bitcoin’s growing alignment with wider volatility of the market.
