Options traders are buckling down for outsized volatility around next week’s election, according to Goldman Sachs. John Marshall of the bank’s derivatives research team said in a note to clients that options market pricing is pointing to a big move for the S & P 500 next week, and even bigger moves for certain groups of stocks that could be more reactive to the outcome of the election. “SPX options imply a +/- 2.1% move on election day. … We examine options on the top 25 macro ETFs which imply an average move of +/- 5.3% for U.S. elections when compared to the past realized moves of ~+/-2.8% during the 2016 and 2020 elections,” the note said. Two of the funds with the highest implied volatility are linked to China: the KraneShares CSI China Internet ETF (KWEB) and the iShares China Large-Cap ETF (FXI) . The relationship between the country and the U.S. seems likely to continue as a key theme in politics going forward. Both major parties have taken an aggressive posture toward China, but Republican Donald Trump’s tariff proposal could pose a more immediate threat to those stocks. The SPDR S & P Regional Banking ETF (KRE) is also on the list, though the potential effect of the election is cloudier there. The group could rally if traders see a strong night for Republicans as a sign that regulation will be rolled back, but regional banks could also struggle if interest rates climb. Crypto is already a volatile area, but Trump’s embrace of the industry during his campaign could spark a significant reaction. The options market implies a move of more than 7% for ProShares Bitcoin ETF (BITO) , according to Goldman. BITO, which holds bitcoin futures, did not exist in 2020, so there are no prior election comparisons for the fund. Options on spot bitcoin exchange-traded funds have only recently been approved by the U.S. Securities and Exchange Commission and were not included in Goldman’s table of macro ETFs.
