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interesting chart i came across

Daily Briefing with Ash Bennington and Jared Dillian

A simple SPY straddle...ultimate US Election trade?

It seems so simple - Buy a SPY Straddle:

  • buy it between the Q3 GDP announcement and Election Day. if they agree on another stimulus before the election that's an added bonus. Plus if the race keeps tightening which it likely will, this will only improve Trump's chances of victory, which is (presumed to be) super bullish for stocks. These three events should at least somewhat depress IV, making the options straddle even cheaper to put on.
  • you won't need more than ~2 weeks for the bulk of the trade to play out, i.e. expiry 2 Fridays after the election (Nov 13)
  • Both call and put strike price = spot price at the moment you execute the trade. i.e. this is a purely binary, directional trade, as the one thing the market is almost guaranteed NOT to do is to stay where it is. It will either surge or plummet. (If you're extra ballsy, place the strikes +/- 5% from spot.)

The prevailing wisdom is that either candidate winning outright is "good for stocks" (I'm deliberately using this painfully lazy and mainstream language), whereas a hung election is "bad for stocks."

Either way there will be a significant IV surge. (The only way there won't be is if markets yawn after the election, and they really cannot 'yawn' under any of the three scenarios [1. Biden win 2. Trump win 3. hung election]; they'll either surge or plummet).

This spike in IV will obviously propel the winning leg... (More)

Sam Colt
"Guy that provides the proper Experimental Design"

The WSJ made an election simulator you always wanted