Traders are not bracing for fireworks. S&P 500 options are indicating a tad above a 0.8% move for Nov. 4, the session that follows election day. That estimated swing is roughly in line with what the market is penciling in for the Federal Reserve outcome slated a few days beforehand. A Bloomberg chart shows the SPX options curve is assigning nearly the same size move to both the Fed decision and the election window.
JPMorgan derivatives strategists, including Bram Kaplan, point out that equities volatility has historically climbed into the vote, often topping out about a month before election day and easing afterward. Even so, today's VIX term structure sits noticeably beneath where it stood ahead of previous midterms. Their base case is political stalemate, which tends to dampen macro ripple effects and helps explain the modest event premium in S&P 500 options.
The team flags wild cards that could stir things up before results are known, from AI-related disruption to higher crude prices tied to the war in Iran. They suggest positioning for the chance that volatility rises into the event, citing "potential for VIX levels to mirror their historical pre-election moves and/or for one of the other key macro risks intensify ahead of the election."
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Right now, the market is charging a small fee for election risk, while history points to nerves peaking about a month out and then fading after results. If that pattern repeats, the bumpier part of the ride may be the run-up, not the day-after move that options are pricing near the Fed's magnitude.
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