The highly competitive presidential election has gradually faded from the market's attention, with investors focusing on the Fed meeting on September 18th. Any policy mistakes could disrupt the already tense and unsettled market due to signs of economic growth slowdown.

Rocky Fishman, the founder of derivatives analysis company Asym 500, said, "The main focus of the market recently may be the Fed and the start of the rate-cutting cycle. Although the risk pricing of stock options around the election date is high, the actual trading volume of election-related bonds is limited."

Traders are also waiting for Tuesday's debate between the two presidential candidates, Harris and Trump, before determining who will win the election. Investors will analyze the candidates' positions on issues such as tariffs, immigration policies, and corporate taxes.

At a time when the Fed has just started hinting at rate cuts, raising tariffs and strengthening trade restrictions could push up inflation. At the same time, strategists at Goldman Sachs said that Harris' proposal to raise the corporate tax rate from 21% to 28% could reduce the earnings of S&P 500 index component companies by about 5%.

Stocks

The fear index, which is closely watched on Wall Street, is the Chicago Board Options Exchange.$CBOE Volatility S&P 500 Index (.VIX.US)$The contract appears to be milder than it was four years ago. The VIX futures curve shows a reduced degree of 'twist,' with the premium of October futures (measuring the volatility of November S&P 500 index options) relative to September and November contracts much lower than in 2020 or 2016.

Steve Sosnick, Chief Strategist at Interactive Brokers, said, 'Apart from continued buying pressure on October VIX futures, we haven't seen much specific positioning ahead of the election. Open interest contracts are not particularly large, which means that the price increase is largely defensive rather than driven by significant hedging demand.'

However, Garrett DeSimone, Director of Quantitative Research at OptionMetrics, stated that the implied trend of the S&P 500 index for the election has been rising, especially since early August, and last week it reached over 1.5%.

Stuart, the head of the Citigroup Global Market US stock trading strategy, wrote in a report: "The election result is likely to be a 50/50 win, so we will focus on holding volatility rather than directional views." "Implied volatility tends to rise as the election day approaches. If volatility eases next month, we will take the opportunity to buy options or trade calendar spreads to reduce costs."

Currency

Forex options traders also appear optimistic - they are preparing for a closely contested election and suggesting that if Trump wins, the risk of trade impact will increase.

To measure the election risk premium in the currency market, traders can now see the difference between the three-month implied volatility (capturing the voting day on November 5th) and the one-month term (not yet captured) for a given exchange rate.

The euro and the renminbi are the currencies most easily affected by tariffs in the Trump 2.0 era. However, the difference between the three-month and one-month volatilities of the euro and offshore renminbi is still within a normal range.

For the renminbi, this interest differential is currently around 80 basis points, lower than the level in July. The euro is currently around 45 basis points, also within the range since mid-2023. Taking the renminbi as an example, its trend is similar to the 2020 and 2016 election cycles.

As the election date approaches, and more campaign activities, interviews, and presidential debates force each candidate's views to be made public, this situation may change. The one-month implied volatility indicator is naturally expected to soar in early October, as it did in 2016 and 2020.

Cryptos

John Divine, the OTC trading director of BlockFills, a trading and technology company in the digital asset field, said,$Bitcoin (BTC.CC)$The positioning is unusually bleak in the short term.

"Currently, the bets are bearish until October 25th, and slightly bullish before the election," he said. "When we look at November, we start to see the bid price of call options higher than that of put options, but the reality is not so, which is quite surprising to me. This indicates the level of fear in the market at the moment."

Divine said that although Trump is generally more favored by the cryptocurrency market, the line between who supports cryptocurrency more is becoming increasingly blurred.

"I don't think the market is entirely focused on who will win in November," he said. "What's more important is that they are using this story to drive a narrative that is bearish."

Editor/ping