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Alpha Exchange

Post Election Reflection (on Vol)

Nov 12, 2024
The podcast dives into the aftermath of a surprising Trump win and the subsequent drop in market volatility. It discusses the intricacies of risk management in finance, emphasizing the importance of hedging strategies in tumultuous political times. Bitcoin's relentless ascent is highlighted, alongside insightful market reflections on leadership changes in the U.S. Lastly, it advises considering protective measures for investments, ensuring a balance between potential gains and safeguarding against unforeseen risks.
16:14

Podcast summary created with Snipd AI

Quick takeaways

  • The post-election drop in VIX illustrates a sharp decrease in market risk perception following significant political changes in the U.S.
  • Investors should consider employing put spread overlays as a hedging strategy to navigate upcoming uncertainties in fiscal and geopolitical policies.

Deep dives

Post-Election Volatility Dynamics

The podcast details the behavior of implied volatility surrounding significant political events, particularly elections, following a historically established playbook. This playbook suggests that implied volatility tends to be high leading up to the event, resulting in a risk premium, and subsequently decreases once the outcome is known. Following the recent U.S. election, the market saw a substantial drop in the VIX, indicating a swift contraction in risk perception, with the VIX collapsing by 20% post-election while the S&P rose by 2%. The analysis emphasizes the importance of trading strategies, such as the implementation of VIX put spreads, particularly ahead of uncertain events to capitalize on potential market movements and volatility shifts.

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