At this point we all know what happened last week, the stock market rallied and volatility got crushed. Now that we have avoided the most recent ‘crisis’ it is time to focus on the next known unknown. Apparently our elected officials will enjoy the holidays and then come back to address running the country in early January. The most recent agreement pushes things out until January 15th and February 7th. I assume these dates were chose due to their respective proximity to January and February VIX futures and options expiration dates. The recent agreement keeps the government open until January 15th, so if the Davis family in my neighborhood wants to plan another trip to Washington, DC and actually get to see stuff they to do it before then. January VIX expiration is January 22nd. The agreement also will result in the debt ceiling being addressed with a February 7th deadline – just enough time to cause some excitement in the February VIX contracts.
For now keep an eye on the January VIX futures market and activity in the January option contracts. I’ve highlighted the January future on the curve below. Note it is at a bit of a premium relative to December. This can be attributed to historical seasonality, but also as the time approaches, may be attributed to the next known unknown risk event being in mid-January of 2014.