SPX Options Market Not Certain on Election Results

The stock market is showing signs of concern on the outcome of the U.S. presidential election with volatility in the options market.

The pre-election and post-election expirations demonstrate the uncertainty and SPX options, which expire after November 8 are at a premium to SPX options that expire before election day, said Russell Rhoads, director of education at the CBOE Options Institute, a Chicago-based educational arm of the Chicago Board Options Exchange. Rumors that the market is not concerned with the results of the election or that the "stock market is discounting a victory by Hillary Clinton," are not true.

These rumors do not hold up, because if the market was viewing the election results as a non-event then there would be minimal difference between the implied volatility of options expiring just before and just after the election, he said.

"In fact, I was surprised that the volatility doesn't drop more after the election results are expected to be known," Rhoads said. "Having SPX options expiring just before and after the election gives us some great insight into how much risk the stock market sees with respect to the outcome of the election."

The financial markets are generally efficient in pricing in risk, said K.C. Ma, a CFA and director of the Roland George investments program at Stetson University in Deland, Fla. Volatility usually rises when there is pending news such as the Federal Reserve announcing a potential interest rate change or company earnings releases.

The volatility or VIX is around 10 for the options expired immediately before the election date versus 12 for the options expired after the election date, he said. That's both surprising and intriguing, Ma said.

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