Options Prices Spike on Election Uncertainty

Risk surrounding the U.S. election is reaching unprecedented levels, as measured by the options market. Head of Global Asset Allocation Ashwin Alankar explains why options prices are rising and why going long volatility may help investors rest easier.

Key Takeaways

  • With the U.S. election nearing, prices for options that expire in November and December have started to trade at relative highs, suggesting the election has become a significant risk event.
  • Even with Democratic nominee Joe Biden leading in polls, the options-implied attractiveness of assets that could outperform under a Biden administration and those under a Trump administration is evenly split.
  • Going long volatility may reduce the impact of market gyrations associated with the election, as well as volatility caused by other risk events, such as the prospects for fiscal stimulus in the U.S. and COVID-19 vaccine development.