Options traders are already trying to game the 2020 election — and it's happening far earlier than in prior cycles

Associated Press
  • Options traders are already betting that the 2020 US presidential election will roil markets. They expect volatility to arrive earlier than in previous election cycles.
  • Contracts wagering on volatility in 2020 are starting to shift toward a bearish sentiment as traders anticipate the market to drop ahead of the election, according to The Wall Street Journal.
  • The 2016 election cycle saw markets move with little volatility until the final week of the race. The stock market jumped following President Trump’s victory, with the S&P 500 surging more than 6% in the two months after election night.
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Options traders are already betting on increased market volatility ahead of the 2020 US presidential election. And their trades forecasting market swings have arrived earlier than in previous cycles.

The biggest shifts in contracts betting on increased volatility in 2020 reflect a bearish sentiment, according to a Wall Street Journal article, citing Trade Alert data. Options traders have been expecting price swings to pick up in September 2020 and remain higher-than-usual through the election.

The 2020 forecast contrasts with the market movements seen before the 2016 election. The stock market was relatively calm in the months leading up to election day, and only saw a jump in trading volume after Trump’s unexpected win. The S&P 500 jumped more than 6% in the two months after election night.

Options contracts allow investors to purchase shares of a stock at a set price by a specific date. The asset can rapidly gain or lose value with market volatility, as a single contract typically represents possible ownership of 100 shares.

Traders can use contracts to bet for or against companies in the near or short term, or even trade the contracts themselves ahead of their expiration.

Options’ expiration dates can give insight into when traders anticipate volatility to rise and which direction they expect the market to move.

Read more: ‘Some kind of warning sign’: The CEOs of Bank of America and Blackstone sound off on the anomaly of subzero borrowing costs and the effect it’s having on the economy

Plenty of the details surrounding the 2020 election are still up in the air. Democratic primary candidates continue to trade places in the polls, with Senator Elizabeth Warren recently edging out out former Vice President Joe Biden for the top spot. The first nominating contest takes place at the Iowa Caucus February 3.

Trump’s odds of winning are another shifting variable, with House Speaker Nancy Pelosi announcing a formal impeachment inquiry into the President Tuesday. Democratic representatives are scrutinizing a July phone call Trump had with Ukrainian President Volodymyr Zelensky, in which the US president pressured Zelensky to investigate Joe Biden and his son.

The controversy stemmed from a government whistleblower complaint concerning the call, which the House Intelligence Committee released to the public Thursday.

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