VIX futures have sounded the alarm in advance! The U.S. midterm elections in November are expected to become a window of high volatility for U.S. stocks.

Although NVIDIA Corporation (NVDA.US) is set to release its earnings report and Federal Reserve Chairman Kevin Walsh's speech in Jackson Hole is a major event for investors this week, traders in the stock derivatives market have already begun preparing for potential volatility increases around the time of the November U.S. midterm elections. Traders focused on volatility linked to Cboe Global Markets Inc (Cboe)s Volatility Index (VIX) futures have noted a rising demand in the market, hoping to hedge against potential fluctuations in the S&P 500 index before and after the elections. VIX futures set to expire in September are currently trading at around 17.4, while October contracts have risen to 19, and November contracts have further increased to 19.7. Matthew Thompson, a co-portfolio manager at Little Harbor Advisors, stated in an interview, "The U.S. elections are approaching, and you are entering a time window where the elections will impact the VIX." He added, "You can already see this spike in the VIX futures term structure." VIX Expected to Rise Further Before Midterms It is not surprising that traders are preparing for stock market fluctuations before and after the elections, as historically, the political uncertainty of midterm election years tends to lead to increased market volatility. According to a study conducted by analysts at Cboe Global Markets Inc., since 1945, actual volatility in midterm election years has been higher than the previous year 80% of the time, with an average increase of 3.5 volatility points. In years when the same party controls both the White House and Congress, volatility tends to rise by an average of 6 percentage points. Cboe data shows that the S&P 500 index has also historically performed weakly during midterm election years, with an average return of 4% and the median just 1%. This year may be particularly significant, as there is a growing backlash among voters regarding the planned construction of artificial intelligence (AI) data centers, an expenditure plan that has been one of the key drivers of the stock market rise this year. Moreover, the focus is not just on congressional elections. The strategist team at Bank of America Corp, led by Michael Hartnett, is particularly attentive to the re-election of Texas Governor Greg Abbott. They caution that if the Democrats take control of the Senate and the governorship in Texas, the stock market could decline by more than 10% next year, which meets the common definition of a "correction." Cboes primary exchange recently introduced daily options for the S&P 500 index that expire on election day and the following day, allowing traders and strategists to begin monitoring the market's anticipated volatility surrounding the election results. Currently, these options are priced to reflect that the market expects an implied single-day move of about 1.4% for the S&P 500 on November 4ththe day after the election. Mandy Xu, head of Cboe derivative market intelligence, stated, "Now that these options are listed, you will start to see an increasing number of trades focused on the election." Additionally, the market is speculating that U.S. President Trump and Treasury Secretary Bensent may try to keep the stock market performing strongly ahead of the election. Brent Kochuba, co-founder of data provider SpotGamma, remarked, "It can be assumed that Trump and Bensent will push for this to continue." He added that as long as Fed Chairman Walsh signals his support for Secretary Bensent's efforts to stabilize the bond market, it would be sufficient to send a risk-seeking signal to investors. He stated, "Don't go against Bensent and Trump." Of course, the rise of October VIX futures could have other reasons, including a seasonal trend of increasing volatility in the U.S. stock market during the autumn months. Brent Kochuba stated, "Clearly, there's a spike, but the VIX term structure also exhibits seasonal factors." In any case, despite this "spike" in the VIX curve, options traders note that now is an excellent time to purchase cheap stock volatility protection from Hershey Company. The VIX spot index closed at 15.8 on Monday, well below its historical average of 19.4. Brent Kochuba remarked, "Insurance is really very cheap right now." He added, "If you hold stocks and want to hedge, now is the time to hold options."