Three Ways to Trade Expected Volatility Ahead of Nov. 3

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Election years are always volatile.

2020 has been no exception.

But what makes this election battle a bit crazier are fears the election may not be decided on November 3, according to MarketWatch.  They add, there’s “the possibility that even if a winner can be identified in the race between former Vice President Joe Biden and incumbent President Donald Trump, a transition won’t be a smooth one.”

While many investors believe neither will be the case, the “what if” scenario could create sky-high volatility, as we see prior to most elections.

2000 Election Year

Ahead of the Bush v. Gore election, the Dow Jones fell from 11,400 to around 9,650.   The VIX popped from 16.50 to nearly 32.

2004 Election Year

Ahead of the Bush v. Kerry election, the Dow Jones fell from 10,400 to less than 9,700.  We also saw a small increase in the VIX before things began to cool off.

2008 Election Year

2008 was an interesting year with the subprime fallout.  Obama v. McCain also added to the downside and volatility because of uncertainty.  The Dow would fall from 11,500 to 7,500.

2012 Election Year

In 2012, we saw a match between Obama and Romney.  While we typically saw increased volatility ahead in most election years, 2012 only saw slight downside in the Dow Jones.

2016 Election Year

As expected, the VIX exploded higher.  This time it would run from 12 to more than 22, as the Dow would trend lower.  All thanks to uncertainty and volatility.

To prepare for the potential for wild volatility, investors have pushed into VIX-related ETFs and ETNs.  In fact, some of the top ones to take a look at include:

  • iPath S&P 500 VIX Short-Term Futures (VXX)
  • ProShares VIX Short-Term Futures ETF (VIXY)
  • ProShares VIX Mid-Term Futures ETF (VIXM)

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