Singapore-based crypto investment firm QCP Capital has observed that short-term implied volatility peaks on election day, expanding by 10 volatility points compared to the previous expiration date. This trend highlights an increased sensitivity in the options market as investors strategize around key political events.
Interestingly, the skew in this market favors call options over put options, despite Bitcoin being approximately 8% below its all-time high. This divergence suggests a cautious optimism among traders regarding Bitcoin's price recovery. Simultaneously, the stock market presents a contrasting picture.
The S&P 500 index has reached a record high, indicating strong performance among a significant portion of listed companies. With 20% of companies set to release earnings reports imminently, investors are eager to analyze how these will impact market dynamics. It is notable that the options market appears to lean towards put protection, indicating a safeguard against potential downturns, with anticipations of a 1.8% fluctuation in the index the day after the election on November 6.
This cautious stance is accompanied by a remarkable correlation between the stock market and cryptocurrencies, which has reached a historic high of 0.83. Such a correlation could suggest a complex relationship where movements in one market could heavily influence the other. Given the prevalent mean reversion trend and the differences in options market positioning, these indicators might be signaling a turning point in investor sentiment.
The upcoming election creates a zero-sum game scenario for the stock market, where the fate of various industries may hinge on the election outcome. In a notable shift, both U.S. presidential candidates have shown more support for cryptocurrencies than the previous administration did. This political climate indicates that any resultant weakness in the stock market could catalyze a capital reallocation toward the burgeoning crypto sector.
Investors should remain vigilant, observing how political outcomes influence market behaviors in both traditional stocks and digital currencies..