International investors expect Trump to dispute election results in case of a loss

Activity shows options market preparing for delayed result

In a recent Optiver Insights webinar, senior traders from the Amsterdam, Sydney and Chicago offices discussed global market volatility in the upcoming months. Nearly 60% of webinar attendees including investors, traders and other market participants indicated in a poll that they expect President Donald Trump to dispute the outcome of the upcoming US election in the event of a Biden win. Additionally, the close to 200 respondents currently give only a 21% chance of the winner being called the day after polls close. Optiver traders have observed that markets are anticipating uncertainty over the result to last until December.

Traders say the combination of ‘constitutional crisis potential’ and the risk of the process being drawn-out are leading to anomalies and imbalances in the options market. They say the options market is pricing in roughly a 4% event for the election, with only a portion of the event variance in the 4 and 6 November expiries as investors shift their hedges into longer dated options.

With nearly half of all ballots for this Covid-19-impacted election expected to be submitted by mail, exit polls and samples from voting districts will not be viable predictors of the result on polling day, 3 November.  

Robert Knopp, co-head of Optiver’s S&P options trading team says ‘’Either there is a very high chance of the result being significantly delayed, and the market remaining under stress throughout this period, or investors being willing to pay a premium to ensure that they are hedged for the results of the election.’’

The responses of webinar attendees participating in the poll, reflected the sentiment that Optiver traders see in the markets. Some 23% predicted it will take until 8 December to declare the winner. However, 47% say the result will be declared by Sunday 8 November – five days after polling day.

Jaap de Vries, a senior trader at Optiver in Amsterdam, also sees strong hedging interest around the election in Europe, with bigger positions focusing on December rather than November – further reflecting the market’s anticipation of a delay. In terms of overall variance for the election, he says the market is pricing a 3% move in Europe, compared to 4% in the U.S.

Senior trader from Optiver’s APAC office in Sydney Karinvir Gill says, ‘’We see similarities in Asia to Europe and the US. Participants are happy to remain short on the pre-election expiries to fund some long volatility exposure into the Election. Overall we see a great deal more uncertainty surrounding a smooth transition of power, with a greater possibility that futures are unable to find a stable level for multiple days, or weeks.

Stuart Pyott, Institutional Trader in Optiver’s London office said: ‘’We recognise that the best antidote to market volatility is market liquidity and Optiver has a central role to play in that. We expect there to be high demand for options liquidity throughout the election period and are ready to meet those demands to help investors. It’s a responsibility we take seriously.’’

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