U.S. options market not very 'Trumped up' ahead of vote

Sun Oct 23, 2016 8:04pm EDT
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By Saqib Iqbal Ahmed

NEW YORK (Reuters) - Prospects that the presidential election will inject a hefty dose of volatility into U.S. stock markets are fading fast as Republican Donald Trump's victory odds lengthen.

A reading of positioning data on options tied to the benchmark S&P 500 index shows little pickup in demand for contracts that would offer investors downside insurance in the event that stock prices take a major hit right after the Nov. 8 election.

Moreover, based on options term structures - calculated from prices of options with different expirations - it is hardly evident at all that investors are positioning for an uncertain outcome, even with Election Day barely two weeks away, Michael Purves, head of derivatives research at Weeden & Co, said.

"There had been a modest premium bump for November options a few weeks ago, but that seems to have faded steadily with Trump's slide in polls," Purves said.

In a Reuters poll of equity strategists earlier this month, a victory by Democrat Hillary Clinton was viewed as the more positive outcome for stock prices in the near term.

Trump's chances of defeating Clinton to capture the White House have diminished markedly over the last several weeks, according to most polls and prediction markets.

The Reuters/Ipsos States of the Nation project, which uses an online opinion poll to project election outcomes in all 50 states, estimates that Clinton has a better than 95 percent chance of winning the minimum of 270 Electoral College votes to claim the presidency if the election were held today. The most likely outcome would be 326 votes for Clinton to 212 for Trump.

On PredictIt, a popular online predictions and betting market, Clinton's implied chances of victory have risen to around 80 percent from around 63 percent a month ago.   Continued...

Republican U.S. presidential nominee Donald Trump holds a campaign rally in Naples, Florida, U.S. October 23, 2016. REUTERS/Jonathan Ernst