How Investors Are Using Options to Price Election-Related Market Risk
How is the market pricing volatility ahead of the 2024 election and how could investors prepare? A look at options on E-mini S&P 500 futures can shine a light on where the current implied volatility trend is relative to historical risk pricing around the U.S. Presidential elections.
Figure 1 – E-mini S&P 500 volatility term structure
The at-the-money (50 delta) futures implied volatility as of 9/25.
The market’s current pricing of the uncertainty surrounding the U.S. presidential is presented above in Figure 1, as of September 25 . A spike in the implied volatility is clearly visible between the E1AX4 contract expiring on November 4 and the E1DX4 contract expiring on November 7 from 11.92% to 14.32%. With the Presidential election on November 5, the market is pricing many unknowns.
Historical implied volatility trends
For historical implied volatility, the data presented is the at-the-money daily average implied volatility for December expiry E-mini S&P 500 options. December expiry options with post-election expiry provide insight on election-oriented risk management. The many option expiries allow investors to place such trades throughout the year, or even in years prior when accounting for December quarterly options (Figure 2). Isolating December option contracts allows for a deep analysis to gauge a potential future evolution of election-adjacent implied volatility dynamics.
Figure 2 –E-mini S&P 500 option listing periods
December 2024 quarterly options are listed for over three years, having allowed traders to trade around the 2024 presidential election on a wide time horizon.
