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Planning for Elections ?

Discussion in 'Options' started by Harry, Aug 30, 2016.

  1. Harry

    Harry Well-Known Member

    It is getting to be time when we will start placing trades for November (post US elections) - maybe we are already doing it.

    I have not yet done any backtesting so no idea as to how election results impact trades. I am still in the learning mode although experimenting flies and condors with small positions sizes so getting to understand some of this.

    However, even if I had done backtesting, this one seems unusual. I presume we will not talk politics, so I will end it by saying that 2 of the extreme situations are possible and probably will move markets. Situation 1 - Donald and the R house and the R senate. If Donald happens, the R house and R senate will most likely happen although based on current polls this trifecta is less likely. Situation 2 - HRC and the D house and the D senate. This (combination) is also quite unlikely but you never know. I think the markets will not move much otherwise (divided government), but if Sit 1 and Sit 2 happen, they will at least move as much as Brexit - maybe go just go one direction for a while.

    Where are we placing our bets? Do we change rules before such events? I would think that it would make sense to bet now when VIX is low rather than 1 month later during debates when this is the only news being discussed and combined with some event in Europe, the IV skyrockets.

    My first pass hedge is November 18 SPX 1950 for 12 bucks and 2350 for 1 bucks (approx) ... have not decided what I will pair it against so as not to have naked position at a high price. Also, I wonder when will November weeklies open since I will be happy with a November 11 position - no need to go as far as November 18. [ Wow 2350 is 3 delta, maybe I should go lower in both puts and calls - 1900 put is for 8 bucks at 8 delta ]. Could we do calendar to reduce cost but increase effectiveness?

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