Election Years and Volatility Spikes

Historically speaking, there's little evidence that election years result in higher volatility

Dec 24, 2015 at 9:10 AM
facebook X logo linkedin


I keep mentioning everyone on TV expects a volatility pop in 2016. That's not unusual because they always expect volatility to go up, looking forward. CBOE Volatility Index (VIX) futures almost always price in higher vol out in time, so it's hard to really argue. But truthfully, when VIX does have one of its sporadic pops, VIX futures tend to go into backwardation, whereas pundits never do -- they'll still call for higher vol.

I agree with both, in a sense, but really for an actual reason other than "VIX looks too low for all the risks ahead." Rather, I do feel that we're slowly moving from a long-term low-volatility regime to a high-vol regime. But that's a topic for another day.

There is one reason I'm hearing for the 2016 volatility spike -- that is, it's an election year. That begs a question, of course: Does VIX actually do well in election years?

If it does, I'm hard-pressed to find evidence for it. Here's a look at VIX each election year back to 1992:

151224agw1

And here's another view:

151224agw2


Well, there's six election years. Three of them saw strong VIX, three saw weak VIX. There's perhaps a modest trend to volatility going higher in October. Maybe that's evidence of some options bid-up ahead of the election -- but keep in mind that's a seasonally strong time of year for volatility in all years.

We were clearly very nervous in 2008 -- thanks, Obama! But I'm pretty sure it had more to do with the Lehman implosion.

The election will have some impact on volatility, but I doubt it's a major driver, mainly because it rarely produces a surprise. We'll know for most of the fall who's likely to win, and investors will adjust accordingly.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI