The recent political developments following President Trump's inauguration have led to a decline in implied volatility, as indicated by the VIX, which has remained relatively stable. The executive orders announced were less disruptive than anticipated, contributing to a surge in equities and a drop in volatility. However, with the S&P 500 reaching new highs, traders are beginning to hedge their gains, signaling a potential pause in the rally. The absence of significant catalysts, such as the upcoming FOMC meeting and PCE inflation data, suggests limited further upside potential. Elevated realized volatility is also acting as a floor for how much further implied volatility can fall, reducing the vanna flows that have supported the current rally.
The ProShares Short VIX Short Term Futures ETF (SVXY) experienced a slight decline, dropping 0.69% to $51.60 at 14:00 on Wednesday, January 22.