The recent inauguration of President Trump and his subsequent executive orders have led to a less disruptive market environment than initially feared, resulting in a surge in equities and a decline in implied volatility, as indicated by the VIX. However, with the S&P 500 reaching new highs, traders are beginning to hedge their gains or adopt more bearish positions, signaling a potential pause in the rally. The lack 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. This cautious stance is reflected in the slight uptick in the VIX, which stands at 15.23, as traders navigate the evolving political and economic environment.
The iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) saw a modest increase, rising 1.16% to $42.60 as of 14:00 on Wednesday, January 22.