S&P Election-Week Options Imply Greater Chance of Big Move Lower
(Bloomberg) -- Investors trying to gauge the sentiment toward equities around the US presidential election can now look directly at S&P 500 Index options linked to the period of the vote, in addition to Cboe Volatility Index futures.
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For months, there’s been a persistent premium for October VIX futures, signaling expectations for heightened volatility in stocks in the wake of Election Day on Nov. 5. As of a couple weeks ago, traders can also monitor S&P 500 options for that period, and those are pricing in a greater chance of a large move following the vote.
Comparing options expiring Nov. 6 to contracts for the day before, calls and puts near the current market level aren’t much more expensive. But further out-of-the-money spread trades imply a higher probability of a sizeable move in the S&P, especially lower, according to Rocky Fishman, founder of derivatives analytical firm Asym 500.
Fishman cites the example of a 5,000/4,800 put spread — well below the S&P 500’s current level around 5,600. For Nov. 6, buying the 5,000 put while selling the 4,800 put cost $8.20, compared with $6.80 for contracts expiring a day earlier.
The higher price on the day after the election implies about a 20% greater chance of the S&P 500 crossing that range following the election than before it, he wrote in a note.
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