Monday, December 09, 2019

Investors are buying insurance against 2020 electoral chaos

Stock investors are hedging in a big way against something scary coming at them this time next year and it could be related to the outcome of the presidential election.

The price of buying downside puts, meaning a negative bet on the S&P 500 is at a historical level compared to the price for upside calls, or an opposite bet in the option markets for higher prices, according to Julian Emanuel, head of equity and derivatives strategy at BTIG.

By this time next year, the Nov. 3 election will have been over for a little over a month.

“To hedge out past the election, the price of downside puts relative to upside calls is literally pricing an election apocalypse,” said Emanuel. “We have said it forecasts either a less business friendly attitude or a civilizational conflict with China after the election.”

Emanuel said it’s unclear which way investors think the election would go. “The left, the right and the center are all worried about highly unstable electoral outcomes,” said Emanuel.

Read the rest here.

I don't blame them. In 2016, Trump repeatedly warned he might not recognize the legitimacy of an election where he lost.

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