UBS's "Turbu-lens" market fragility index hit its maximum reading for the first time since late 2024, a level last seen just before a volatility spike in March 2025. The bank's strategists point to the Federal Reserve's September meeting and November's midterm elections as the risks driving the reading, and they are positioning in VIX options around both events.
UBS's fragility gauge has reached a reading of 1, its highest possible level, on Aug. 19 — the first time it has hit the top since late 2024. The index, called "Turbu-lens," is designed to forecast market fragility using a basket of about 100 high-yield corporate credit default swaps, G10 foreign-exchange volatility and S&P 500 commodity trading-advisor positioning.
Strategists flag a more fragile market
According to UBS strategists led by Maxwell Grinacoff, head of U.S. equity derivatives research: "The market has become notably more fragile". The last time the index reached a reading of 1 was heading into the Fed's first meeting in December following the 2024 U.S. presidential election. After that reading, the CBOE one-month volatility index climbed 12 points before jumping by about 25 points in March 2025.
Fed meeting and midterms in view
UBS's strategists said the upcoming Federal Open Market Committee meeting in September and the midterm elections in November are two risks that have risen in relation to risk pricing. The options market is projecting the S&P 500 to rise or fall by almost 1% on both days.
UBS positions around the events
The strategists recommend selling VIX September 16 puts to fund a bull call spread, buying a 20-strike call and selling a 25-strike call for flat premium. For the midterms, they suggest selling VIX October puts that capture the Nov. 3 election to fund the purchase of VIX November puts, positioning for volatility compression after the event. UBS cautioned that while its index is flagging extreme market vulnerability, the catalyst is not certain, and the firm still needs to determine what it will or will not be.
Source: MarketWatch
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