Just Nine Weeks Until the Big Day
It’s almost the same as a countdown to a blockbuster movie release—well, it’s the U.S. election. Market players are already tossing their money around the “what‑if” vibes, especially in the derivatives crowd.
The FX Flash
In foreign exchange, one‑month implied volatilities now stretch beyond Election Day. We’re seeing a spike across all the G10 currencies. The Euro’s volatility is beach‑bodily close to its yearly high, while the Sterling‑to‑USD pair (the “cable”) has slump‑back from a 12‑month peak.
Step aside, traders — the numbers suggest a possible +-24‑point move in most G10 pairs, comfortably within one standard deviation. That’s not a hard ceiling, just the market’s warm‑up test.
The “Risky Business” Wrap
Implied vol gives you no clue on a directional lean, that’s where risk reversals come in. They compare put and call levels on identical strikes and tenors, letting you decode the demand for each side of the market.
Right now, buy‑to‑sell ratio bounces signals: puts are craving more sky‑high beliefs in a USD rally for the next month. The 1‑month Euro’s risk reversal sits near its nastiest since summer’s mid‑point, and the cable is at a two‑month low.
- “Trump trade” alert: bullish USD bets are climbing, as folks line up for Mr. Trump (or a powerful emotional diva!) in the Oval Office.
Equities & VIX Fiesta
The VIX is hip‑hoping above 20 — normally a sign of a nervous market, but for a single short period it’s a structural dance, reflecting 30‑day implied vol that now shadows the election window. Surprising? Yeah. But a simultaneous rise in the VIX and the S&P 500 isn’t a must‑sell cue.
Looking at the futures curve, the “kink” still plays out: volatility drops off right after the election‑linked expiry. With the AP’s 2020 result arriving sharp on Saturday, some investors might be sleeping on it.
- Market sentiment: 1‑month S&P 500 skew (put vol minus call vol) shows secret love for downside protection. This feels like a safe pair, mirroring the calm vibes of how tops-of-the-year got down to investors’ expectations.
Play‑In Time
Expect traders to spill in cash into the under sides mildly before Election Day, hedging out risk to avoid a whirlwind day. Those long‑USD positions in FX might pull back slightly as well, lots of fun theories on the road.
Also on the Board
Besides the election pyro, watch these heat‑up events: earnings season knocking, the October jobs release (Nov. 1), and the next FOMC meeting (Nov. 7). All stacking up like a stack of pancakes – fill your plate before the big flip.
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