The Stock Market May Love The Election Results No Matter Who Wins

I’m keeping this short tonight because it feels like 1 AM, even though it’s only 6:30 PM. It’s been dark in New York since before 5, and I’m already ready for bed. I really don’t like the switch from daylight saving time back to standard time.

Anyway, the VIX 1-day finished near 23, suggesting the market is pricing in significant volatility around tonight’s election. That means there’s a good chance the S&P 500 rallies tomorrow, perhaps by 1% or so, regardless of which side wins, as that event-related uncertainty disappears.

TV will spend all day explaining that the Democrats swept and the market loves it, or that the Republicans swept and the market loves it. Or my personal favorite, that the market loves gridlock.

In all likelihood, once the results are clear, the implied volatility premium built into short-dated options will collapse. As those options lose value and their deltas change, dealers may need to unwind the stock and futures hedges they put on ahead of the election. If that leaves dealers buying back short hedges, those flows could help push the S&P 500 higher, regardless of the political outcome.

That’s all I have tonight. Goodnight.

-Mike

Michael Kramer publishes independent macro and options research read across 10+ platforms and by institutional desks.

For institutional partners: research syndication, licensing, and bylined or white-labeled commentary for platforms, brokers, and publishers.

Inquire →

Glossary by ChatGPT

Dealer Hedging: The buying or selling of underlying securities or futures by options market makers to manage risks associated with their options positions.

Delta: An options sensitivity measure estimating how much an option’s price changes for a one-unit move in the underlying asset.

Event-Related Implied Volatility: The additional expected price volatility reflected in options ahead of a known event, such as an election or central bank announcement.

Gamma: The rate at which an option’s delta changes as the price of the underlying asset moves.

Hedge Unwind: The reduction or removal of positions previously established to offset financial risks.

Implied Volatility: The market’s expectation of future price fluctuations derived from options prices.

Short-Dated Options: Options contracts with relatively little time remaining until expiration, often particularly sensitive to near-term events.

VIX1D: The Cboe 1-Day Volatility Index, which measures expected S&P 500 volatility over approximately one trading day.

Volatility Crush: A rapid decline in implied volatility, often following the resolution of an anticipated event or uncertainty.

Disclosure

This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.