Volatility index spike: Do election bets need to be hedged?

livemint.com:

Nerves in Indian stock markets have grown taut in recent days. Although the broader S&P BSE Sensex has more or less been flat since Lok Sabha polling began on 19 April, the VIX index has shot up. This index conveys the level of volatility expected.

As recently as 23 April, it was at a three-quarter low, which was remarkable in the context of elections. By 7 May, however, it had leapt 70% higher from that idyllic point. So, what took the calm apart? Expectations.

As market participants point out, a decline in voter turnout during the first two phases of the polls in comparison with 2019 may have been taken as a sign of the outcome being less predictably inclined towards a return of the Bharatiya Janata Party (BJP) government. As many investment positions are likely to have been built on the assumption of a clear BJP win and the policy stability assured by that, any whiff of a potential upset is sure to have a market impact. Other factors may have moved the VIX too, such as a tough approach taken by India’s bank regulator.

But the big reason seems to be a rush to hedge bets. “Straddle" strategies are said to be in play. It’s logical.