Goldman Sachs said options traders are grappling with huge swings around next week’s election. John Marshall of the bank’s derivatives research team said in a note to clients that options market pricing is pointing to big moves in the S&P 500 next week, with even bigger moves in some share classes that could An election where there will be greater reaction to the outcome. “SPX options imply an Election Day swing of +/- 2.1%. … We looked at options on the top 25 macro ETFs, which implies an average swing of +/- 2.1% for the U.S. election compared to the ~+/+ realized in the past. +/- 5.3% and -2.8% between the 2016 and 2020 election periods,” the report said. The two funds with the highest implied volatility are China-related: KraneShares CSI China Internet ETF (KWEB) and iShares China Large-Cap ETF (FXI). The country’s relationship with the United States appears likely to continue to be a key theme in future politics. Both major political parties have taken an aggressive stance toward China, but Republican Donald Trump’s tariff proposals could pose a more direct threat to these stocks. The SPDR S & P Regional Banking ETF (KRE) is also on the list, although the potential impact of the election is less clear. The group could rise if traders believe a strong Republican showing signals regulations will be eased, but regional banks could also be in trouble if interest rates climb. Cryptocurrency is already a volatile space, but Trump’s embrace of the industry during the campaign could spark a significant reaction. Goldman Sachs said the options market means the ProShares Bitcoin ETF (BITO) will rise by more than 7%. BITO holding Bitcoin futures did not exist in 2020, so the fund has no prior election comparisons. The spot Bitcoin ETF option was only recently approved by the SEC and is not included in Goldman Sachs’ macro ETF table.
