Options suggest unusual calm as elections approach

Various measures of risk and uncertainty in the market, including the popular CBOE Volatility Index, show investors are less worried about stocks in the coming weeks.

“The VIX is amazingly calm going into the election period. I think we’ve found a good place in the market right now, and investors are certainly not expecting a shock in the near term,” said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research in Austin, Texas.

The wide consensus is that most investors in the stock and option markets have already priced in a Republican takeover of at least one house of Congress in the mid-term November elections just two weeks from now.

The VIX, Wall Street’s “fear” gauge, is currently at about 20, its lowest since late April. It has been below 30 since early July.

The index, which reflects the cost of hedging risk through buying or selling option contracts on the S&P 500, was near 50 in May and up to 70 at the peak of financial crisis. Because it tends to move in an opposite direction to the S&P, many investors see a higher VIX as meaning lower stocks.

S&amp,uk politics;P 500 futures suggest that investors are looking at about 2.7 percent move on the S&P 500 from now to November expiration, which occurs about two weeks after the election. Options activity on the exchange-traded fund that follows the index also suggests about a 2.6 percent move up or down.

For now “there is a slight bias in the puts but it’s a very insignificant difference,” as investors can buy both puts and calls without paying a hefty risk premiums, Frederick said.

Paul Carrozzo, managing partner at On Point Executions, an options broker-dealer in New York, said a notable trend recently has been that options investors are buying or selling more contracts in longer-dated options.

“Normally, the first three months’ contracts are the ones that see the most volume. But recently, we are not seeing much trading for November or December. Instead, we are seeing a lot of March-dated contracts. Institutional players especially are trading further and further out,” said Carrozzo.

The trend suggests that even with a Republican win, the outcome of the election will start affecting the markets in March, when investors get a better picture on the effects of healthcare overhaul, tax changes and further moves by the Federal Reserve.

“They are the key drivers to where the market is going to go, and it seems like we are not going to get a clarity on the situation any time soon,” he said.


Credit Suisse said in a recent note that options market sentiment has improved across most sectors, with risk aversion decreasing as demand for protection against falling stocks subsides before the November election.

The analysts said several option trades in financial, healthcare and consumer discretionary stocks suggest uncertainty in those sectors has declined the most.

In the healthcare sector, managed-care stocks rose nearly 8 percent in seven weeks as investors factored in Republican gains in the U.S. House of Representatives.

Most polls suggest Republic cartoon porn ans are likely to win control of the House while Democrats are expected to retain a slim majority in the Senate.

Some on options exchanges also favor a Republican win.

“The Democratic regime tends to hamper competition in the securities market,” said Ed Boyle, vice president of NYSE Arca Options, the electronic trading venue owned by exchange operator NYSE Euronext..

“We certainly hope that it becomes more of a Republican plate so that we can make our case to the administration with how to move forward with market structure.”

The U.S. Securities and Exchange Commission has been proposing various regulations on the options industry, including a mobile porn trading-fee limit of 30 cents per contract on options orders, similar to an existing cap of 30 cents for 100 shares in the stock market.

The fee-cap regulation is denounced by many exchanges, which argue that regulators should not apply equity market rules because they would have a different effect in the options trading.

The regulations are intended to prevent an exchange from abusing rules that require them to route away any orders they can’t fill. The fear is that the recipient exchange will charge the routing exchange an exorbitant access fee.

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