MarketWatch columnist Lawrence McMillan argues the market’s July calm typically gives way to sharper swings once August arrives. He points to a seasonal volatility pattern going back to 1989 and lays out how traders might position for a possible spike.
Volatility tends to bottom in July and climb from August into October, according to MarketWatch columnist Lawrence McMillan. He reads the current calm as the seasonal low, the trough on a composite VIX chart going back to 1989.
A pattern that peaks in autumn
Early-year volatility often rises into a mid-March peak, McMillan writes, most prominently in March 2020 and April 2025. It then fades as the market generally rallies, or is at least complacent, into July, reaching its low for the year.
From there, August frequently turns volatile and the turmoil can run into October, he argues. October is often a month of severe declines, McMillan writes, but is also known as a “bear killer” where the market has often bottomed and halted those slides.
How he suggests trading it
Being long volatility is the position McMillan favors, though he stresses it is harder to implement than to identify. He notes that VIX futures, options, and the ETFs and ETNs tied to them carry nuances many traders miss.
Buying distant October contracts now can backfire if the jump arrives earlier, as it did in early August 2024, he writes. Instead, he suggests buying short-term volatility and rolling it forward until a move occurs.
When markets begin to plunge, managers reach for the cheapest immediate protection, buying near-term S&P 500 puts rather than distant ones. That rush forces near-term VIX futures higher faster than longer-dated contracts.
The gap can be large. During the September and October 2008 volatility explosion, near-term VIX products rose about 600%. Those expiring in February 2009 gained about 10%.
For fund exposure, McMillan points to products holding near-term futures such as UVIX and VXX and warns against intermediate-term names like VIXM. He also prefers VIX options, suggesting strikes 33% out of the money to capture a big move.
Not every year fits the pattern, he cautions, but too often the August jump catches traders unprepared.
Source: MarketWatch
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