While it’s long been a practice to trade volatility in single name stocks around an event like earnings, with the ability to see the distinct amount of volatility priced into the earnings move – event vol around macro level events has been a less talked about trade. There’s many reasons for that, chief among them that there are at least 499 more data points when talking about an index of stocks than an individual stock itself. It’s also much more clear that a stock should go up on a positive earnings beat, than it is that the stock market should go up/down on an unemployment beat (maybe its so bad that the Fed will step in, which is then good, etc, etc). So, in short, how do you know how much of the index’s implied volatility is from the event, and how much is from all the other stuff that feeds into index movement day in and day out. It’s hard, but the CME has a tool to help out.
But, whether it’s because this election seems to be looming larger than most, or whether traders have gotten better at identifying event vol in indices – it seems everyone is talking about trading both sides of this event vol = the US election. Here’s two recent examples:
- Fears of a disputed US election fuel market volatility bets … – Financial Times
- Betting against election volatility draws contrarian investors – Marketwatch
We touched on this about a month ago while the October VIX futures contract was elevated relative to the September contract (because the VIX index looks 30 days out, so the option dates including the Nov. 4th election were included in the Oct. VIX futures). But there’s a much different look now, with VIX futures relatively flat all the way out until next June. Here’s the vixcentral.com chart via @vixologist on Twitter:
This meshes a little better with the actual calendar and how events might play out in real time, because while there is a single election date in the US, (November 3rd) there are many important dates which would be signposts along a contested election road. Here’s the outline of what happens when between election day and the actual inauguration 80+ days later (per Wikipedia)
- November 3: Election Day
- November 4: Counting of absentee/mail-in ballots begins in many states.
- November 6:Deadline for mail-in ballots to be received by election officials in Kansas, Kentucky, Massachusetts, North Carolina, Pennsylvania, and Virginia.
- November 8:Deadline for mail-in ballots to be received by election officials in West Virginia.
- November 9:Deadline for mail-in ballots to be received by election officials in Iowa.
- November 10:Deadline for mail-in ballots to be received by election officials in Minnesota, Mississippi, Nevada, New Jersey, and New York.
- November 13:Deadline for mail-in ballots to be received by election officials in Ohio and Maryland.
- November 17:Deadline for mail-in ballots to be received by election officials in Illinois.
- November 20:Deadline for mail-in ballots to be received by election officials in California.
- November 21–TBD:Continued counting of absentee/mail-in ballots, including any legal challenges to the counting processes, across the country.
- December 8: The “safe harbor” deadline under the Electoral Count Act, where states must finally resolve any controversies over the selection of their electors of the Electoral College.
- December 14: The electors meet in their respective state capitals(electors for the District of Columbia meet within the district) to formally vote for the president and vice president.
- January 3: The 117th United States Congressconvenes with those members elected in 2020. Pence continues as president of the Senate until his vice presidential term ends.
- January 6: Electoral votes formally countedbefore a joint session of Congress; the president of the Senate formally announces the electoral result
- January 20: Inauguration Day.
How does it work if there are legal challenges, accusations of voter fraud, and whatnot? Here’s left wing comedian Bill Maher explaining what could happen: