Markets hedge uncertainty and hedge buying sends the VIX index higher. Some future events can hold significant impacts on markets and these include economic reports, Fed rate decisions, elections, and so on. Most binary events produce a noticeable divergence in the SPX-VIX relationship where VIX either holds steady as SPX rises, or VIX rises more than seems normal for a given SPX change.

Not every SPX-VIX divergence is a binary event and not every binary event produces a tradeable opportunity. I’ve found that events significant enough to be tradeable occur only a handful of times per year. The market determines what it cares about for any event, so while the Fed might meet seven times per year, the market might only get worried about one or two of those meetings. An election may or may not offer a starkly different (perceived) future economy depending on who wins. (The markets for the 2016 election initially panicked with the idea of a Trump win, then changed their minds overnight. What was probably more accurate is that the first reaction was created by knee-jerk traders and when the big boys (who had a different take all along) saw the opportunity the early birds created, jumped in a bought with both hands.)

Binary events need a few setups to be in place before they become sizeable;

50/50 probability of outcomes, like a corporate earnings announcement

Pronounced macro consequences (as opposed to just one sector)

The volatility build/divergence typically forms only a few days to a week before the actual event, though some are telegraphed months in advance (like the VX curve for the 2020 election. Often (but not always) you’ll see VIX sell off before the event’s outcome is realized, indicating that the bulk of those who need to buy hedges were finished, and the mean reverting VIX succumbed to normal supply and demand forces.