Pre-market futures are pointing to a much higher opening, looking to stem a 9 day losing streak in the major stock market averages.
Traders are hyper focused on the election Tuesday! Sunday, the FBI announced no reasons were found to charge presidential candidate Hillary Clinton after it reviewed the new emails. The threat of indictment had been attributed to the market’s tailspin last week. Actually the Trump surge in the polls last week coupled with the news today, could manufacture an election result of continued Washington gridlock – the Republicans retain the Senate majority, but Clinton wins the presidency. In the past markets have responded favorably to gridlock. Regardless – traders are hyper focused on the election Tuesday.
Tons of companies announce quarterly results this week including Priceline (PCLN), Marriott Int’l (MAR), CVS Health (CVS), Disney (DIS) Michael Kors (KORS), Macy’s (M), JC Pennys (JCP) but traders are focused on the election Tuesday.
Even with the relief rally this morning the OptionsHouse Implied Volatility Constellation in the SPY SPDR S&P500 ETF shows the event risk for tomorrow’s political event. So this election may have additional surprises still to come.
It is very important to realize that with such a short time to expiration in the option expirations above implied vol is less important as the Vega of short dated options is very small. Vega is the measure of the change in theoretical value of the option for a 1 point increase in implied volatility level. 31.5% is a really high implied for the SPY certainly, but the Vega for the ATM options is only 7 cents. It is better to look at the actual price of the straddle to gain perspective on what the option market views as the potential price movement up or down for this event. After the opening today the ATM 212 straddle expiring on November 9th Wednesday’s close is priced at $4.40. That is over a 2% move! The market is saying we could have some fireworks still ahead of us.
Did I say that traders are hyper focused on the election Tuesday?
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