The situation is increasingly turning more dicey as markets are shifting into pre-panic mode with only six days to go until an almost assured presidential election train wreck. You wouldn’t really think so just looking at the price action over the past week but under the hood pre-election hedging activity has left tell tale signs of a busy winter in the making.
I watched a post debate panel this morning and the one big take away after hearing comments from undecided voters from both sides of the isle was that people are sick and tired of the non-stop drama. Exhaustion runs high and if there is one sentiment that everybody shared is that they just want to get back to work and their respective lives for that matter.
For all intents and purposes 2020 has already been the most contentious and violent U.S. election season in living memory. With a nation in a state of a cold civil war one would assume that the financial markets would take note. And under the hood they did indeed respond by keeping implied volatility elevated throughout the year. However, with the exception of a much overdue correction earlier this month we currently seem to be in a pre-election holding pattern. What should we make of that and where are we heading next?
The past four sessions turned into a wild ride but as of the Friday open the SPX has been getting nowhere fast and finds itself almost exactly where it started the week. This puts us in a very interesting situation for one main reason: With a monthly and a weekly contract expiring this morning, a 70 handle EM range, and quite a bit of gamma risk there is potential for a significant move today.