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There are numerous ways to trade this event through the vol complex. One of which is relative value.
If I were to express such a view looking at the spread between M1 and M2, I would probably trade the futures spread instead of using options. To reduce risk, I would probably look at trading spreads in further dated months. The beta of this spread position relative to spot vix will be lower.
The election results will come in after the market is closed but the VX futures may be trading at that hour. VIX options do trade late at night but are not accessible to retail.
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
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i don't know about the other assets but in VIX the election premium has been there for months. It looks more obvious in these charts as they show M1-M2 rather than U20-V20.
A discussion point I am seeing more and more is related to this but even more extreme. "In 14 states — including some battlegrounds — officials can't even start authenticating early mail-in ballots until Election Day, much less begin tabulating them.*". We will not know the final result of the election until DAYS AFTERWARDS. Given that Democrats are assumed to favor mail in ballets more than Republicans, a possible scenario is that on election night Trump is heavily in the lead, but day by day that lead is whittled away as more and more mail in votes are counted. The uncertainty actually increases as things get closer and closer, and then finally on Election Day + X the final result is what? Market volatility in the days following the election could be significant as the estimates swing day-by-day.
Food for thought/Recap: In 2016 the stock market was down 5% overnight before closing up 1% at the end of the day.
"Oct VIX futures are still elevated and have been since March. The backwardation structure doesn't necessarily suggest increasing volatility and since spot VIX is lower than Oct Vix futures, I think Oct Vix futures drops towards spot VIX."
So, all things being equal, that means 5 points have to come out of the OCT futures in the next month to get to a VIX of 25.
To put that in perspective, let's remember that the normal case is about 2 points after expiry and between the new front month and spot VIX. This is vastly greater. I've never seen this before since I started following VIX.
So, what's your play for this?
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
The NOV future must necessarily increase from here on out, too. OCT rolls off two weeks before the election, and the tension is just gonna be starting to ratchet up immensely then. The outcome of the election may not be known until after NOV rolls off on the 17th. So that means NOV will be elevated right till expiry. DEC will also be affected.
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
VIX Nov 40 60 call spread seems to be one popular long vol play going into the election. Somebody bought a ton of them last week at 2.38. Now it's going for 2.25. BTFD.
"Persistence is very important. You should not give up unless you are forced to give up." -- Elon Musk
