QuantumLogicTrading

PRESIDENTIAL ELECTION - TRUMP TO WIN - SHORT SPX & LONG VIX

TVC:VIX   VOLATILITY S&P 500
a month ago
Preparing for a Trump win

Following Friday and the FBIs decision to re-open the case on Hilary I have decided I am going to assume A Trump win, this is for several reasons:

FBI

https://pbs.twimg.com/media/Cv3sc7jVYAAoTA0.jpg:large

1) After reading into it, the reopening of the FBI case implies one of three things imo - 1. They have found new significant information that can or will see Hilary odds come under-pressure if not ruled out entirely. 2. A third party (wiki leaks or Russia etc) has obtained information regarding that matter that will be used against Hilary. 3. The FBI Chief fancies his 2 minutes of fame.

- In terms of likelihoods, 1 is perhaps the most likely - I find the timing of the reopening the most damning argument for there being some real anti-hilary firepower, given it is within the FBIs discretion to reopen the case now, surely if it wasnt that important they could wait until after? Of course this may be questionable integrity but equally some may argue they should have done so to stay neutral. However, perhaps most interestingly, the timing AND the fact the FBI have been pro Hilary in the past also gives weight to number 2 - where the FBI have had their hnd             forced e.g. if a 3rd party does indeed have some relevant information the FBI perhaps dont want to be seen as incompetent and thus want to get infront of the news. The timing also supports argument 2 since it is a bit of a shock announcement and thus it could be a 3rd party forcing their hand. On the other hand some may question why a 3rd party would notify the FBI and not just release it. Finally, 3 as is the case in most public situations, it is possible and it is the US after all. however, an argument against this is the fact the FBI have been pro Hilary so its unlikely this would only happen for fame.

- If it is any of the 2 above and information that could write Hilary off as a candidate, of course positioning for Trump make sense. especially when the market is very very short trump here. Since Friday Trump has lost half of his gains to trade currently at 23% up from 18% but down from 27%, these are odds i like to start adding some length for trump.

POLL

http://voteforthepresidentonline.com/poll-results/

1) Recent official polls of 1000-2000 are a lot tighter than i expected and are certainly imply much longer odds for Trump. However the main decider for this variable is that an unofficial online poll of 1,000,000 shows trump trading at 526652 with Hilary lagging down at 253024, putting trump up at 60% and Hilary down at 30%. I saw an unofficial poll for brexit which had 700,000 respondents with 70% for leave and 30% remain and we know what happened there. IMO data rules, 1000 isnt enough to be representable there is too much sampling error. In conjucntion with this I feel there will be alot of closet trump voters.
a month ago
Comment: [b]MARKET[/b]

1) Pricing - As mentioned previously, the market is very short trump and too long Hilary here with the above considered. Odds only at 23%, the VIX only at average levels, the MXN and USD are bid up 10 and 4% in recent weeks respectively and the SPX still in a bull range (not to mention safe havens which are trading relatively soft). Thus the fact that the market is pricing trump premium so low it looks like there is certainly some topside to be had. If the markets were stretched and closer to 50/50 of course such trades might not make as much sense from a r:r perspective. But trump is potentially at least 2x cheap, there are positions to be made that can offer 1:2-4 risk reward. Further, the positions used do not necessairly need a trump win to hit targets - given the volatility regarding the FBI probe plus trumps ability to possibly win big contested states on the day (but not necessarily win), either or both i think will be enough to realise volatility to a level that hits some targets given how short the market is on trump it leaves a lot of topside run way - we only need to get one of the above risk events right in the next 10 days (at any time) and this is likely to see trump odds bid and hit targets.

2) Macro - Further being long vol is also supported by the slew of central bank meetings this week. Whilst i dont expect much change (BOJ most likely to change - a 5-10bps cut in rates but still unlikely), still it makes sense to own vol here through the FED BOJ BOE RBA.

[b]Trading Strategy:[/b]

1. [b]Short SPX @mrkt [/b]- [b]Target 2115, 2005, 2075[/b] - whilst owning vol, being short SPX makes sense at these stretched levels, particularly as we move close to a potential hike. A trump win will see us trade through 2000TP, whilst a tick higher we can set our targets at 2105/15TP before 2075TP and 2055TP.

2. [b]Long VIX @mrkt[/b] - [b]Target 20 and 24[/b] - vol is currently trading flat at the 1,2,5yr MA and the 2yr linreg (whilst we are bid above the 1 and 5yr regression quite significantly). Last week was a better place to be a buyer back at 12.50, nonetheless, in comparison to recent spikes we still have 400bps of topside to sept highs at 20 which is a good 25% to be paid, before 24/5 and some 50% higher with 30 75%. 20 should be the intermediate target (comparable to 2000-2075 in SPX) , and 24/5 to 30 Trump winning target.

[i]*These positions in SPX and Vol make more sense too as I am happy to be a buyer/ seller here anyway given cheapness and how stretched i believe equities are - the election event is a bonus- hence I I am not positioning early for the election in FX as MXN, USD, JPY arent at relatively favourable levels and still could move considerably against long trump and too risky.[/i]
a month ago
Comment: The a link from wikileads likely leading the jump in vol and dip in risk - https://wikileaks.org/podesta-emails/?q=&mfrom=&mto=&title=¬itle=&date_from=&date_to=&nofrom=¬o=&count=50&sort=6#searchresult …
threelot
a month ago
I was able to vote multiple times in the poll you posted, not unlike Drudge and others. If one looks at the scientific polls from actual pollsters, it's hard to see a path to victory for Trump. It's there, but it's narrow. Nate Silver and Salil have him at about a 20% chance and that's about right. For both that's an improvement and will likely continue to improve until election day. Anecdotally, when you look at the difficulties he's having in places like Alaska, Utah, Arizona, Texas and Georgia, all blood red states, it's really difficult to place a bet on a Trump victory. The demographics of those he's pissed off match those polls. Many look at the FBI investigation as noise, as this hasn't been a binary choice from the beginning. I'd rather be long HRC, given this is a zero sum game of probabilities. I am currently flat and will only trade ranges until post election, however. Thanks for your thoughtful analysis, as always.
Reply
QuantumLogicTrading threelot
a month ago
even if everybody voted 3 times (which i doubt) that still means 300,000 people voted? whihc makes it 300x bigger thn the next poll. besides the same poll was used for brexit and most people like yourself said "i cant see a way for the leave campaign" and we know what happened there. no matter what way you look at it the shear mass of votes show a skew towards trump. theres no way to argue it, unless you think people who voted clicked randomly which i doubt.

thats fair enough but like i said im happy to be long vol and ive been short SPX for a while anyway, we will see!
Reply
threelot QuantumLogicTrading
a month ago
I'm not saying the possibility doesn't exist. I'm saying the probability is low. The Republican party is a minority party and continues to shrink, as hispanics and other minorities increase their share of the population. I believe it has grown by 2% since 2012. It is already extremely difficult for a Republican to win the White House. It requires a perfect storm, or we'd have a President Romney right now, and he lost by 4% with the final polls nearly tied. As Trump continues to attack every demographic that matters, I simply don't see how he wins. For example, I am a former military officer, registered Republican, and won't be voting for him for a number of reasons. My peers feel the same way. And his endorsements by former military general officers fall far short of those normally received by a Republican. They don't trust him. Rather than blathering about Mosul and other military matters, as he does, he should first read Sun Tzu, The Art of War. It would help, because he sounds like an idiot. So, I'm shrinking the Republican base like so many others that have come forward as Never Trump. Add to it that women made up 53% of the electorate last election, and his issues there, I simply don't see a path. This is a bad joke gone bad for a man that doesn't come close to meeting a minimum standard for CiC. That's my common sense assessment, for what it's worth. Regards.
Reply
ChartArt threelot
a month ago
Here are the sources I found so far which point to a Trump lead, so I would not be shocked anymore if he wins. From weak to strong research:


1. Halloween mask sales have predicted the presidential winner for the last 20 / 36 years (I found both numbers online)
http://www.westernjournalism.com/unusual-system-that-has-predicted-presidential-winner-for-last-36-years-has-trump-as-winner/
http://www.bloomberg.com/news/videos/2016-10-13/can-halloween-masks-predict-the-winner-of-the-election
http://www.cbsnews.com/news/mask-index-helps-predict-election-day-outcome/


2. Reliable artificial intelligence system predicts Trump will win
http://www.cnbc.com/2016/10/28/donald-trump-will-win-the-election-and-is-more-popular-than-obama-in-2008-ai-system-finds.html


3. This stock market test points to a Trump win, CFRA Research
(Since 1944, there have been 18 presidential elections. This metric has correctly predicted all but three of them)
http://money.cnn.com/2016/10/31/investing/stock-market-trump-clinton/index.html
http://www.cnbc.com/2016/10/31/this-stock-market-metric-says-the-likely-winner-istrump.html
http://q13fox.com/2016/10/31/donald-trump-will-like-this-a-key-u-s-stock-market-metric-is-pointing-to-a-trump-victory-cnnmoney-breaks-down-the-latest/


4. Trump leads in a innovative poll developed by researches of the USC Dornsife, which asks a different question than other surveys
http://graphics.latimes.com/usc-presidential-poll-dashboard/
(explanation how it works different: http://www.latimes.com/politics/la-na-pol-poll-faq-20161006-snap-story.html)


5. Trump is the winner in a research of a professor who correctly predicted 30 years of presidential elections
(a model which successfully predicted all but one presidential election result for the past 100 years)
https://www.washingtonpost.com/news/the-fix/wp/2016/10/28/professor-whos-predicted-30-years-of-presidential-elections-correctly-is-doubling-down-on-a-trump-win/
http://www.independent.co.uk/news/world/americas/donald-trump-will-he-win-us-presidential-election-2016-hillary-clinton-a7380621.html
Reply
QuantumLogicTrading ChartArt
a month ago
yup you dont need to convince me! Im betting trump wins, heres the link from wikileaks causing the bid in vol and dip in risk - https://wikileaks.org/podesta-emails/?q=&mfrom=&mto=&title=&notitle=&date_from=&date_to=&nofrom=&noto=&count=50&sort=6#searchresult …
Reply
420snoop
a month ago
regardless of who wins election a major correction of spx could come with rate hikes
Reply
QuantumLogicTrading 420snoop
a month ago
I dont think 1 hike in 2016 is enough to cause a correction, i am and was of the view that we needed a "shock" second hike in september in order to cause a sell-off to 2000 or 8-10%.

the market is already pricing 70-80% of a rate hike for december already so id say the market and risk is pretty well set up to take the hike in dec, there isnt enough uncertainty to cause a shock with the one hike, as like i said most is priced and expected for dec already. t


the fed is already 2-4 hikes behind their 201 projection, so theres so much more slack now. this shallow curve is gonna struggle to shock spx imo. theyre going back wards. 2 hikes was meant to be a given this year, in reality 3 should have been on the cards now 1 is struggling.
+1 Reply
aren't you mixing up the dates ? Elections are Tuesday the 8th......right ?
Reply
Ideas Scripts Chart
United States
United Kingdom
India
España
Italia
Brasil
Россия
Türkiye
日本
한국
Home Stock Screener Economic Calendar How It Works Chart Features House Rules Moderators For the WEB Widgets Stock Charting Library Priority Support Feature Request Blog & News FAQ Help & Wiki Twitter
Private Messages Chat Ideas Published Followers Following Priority Support Public Profile Profile Settings Billing Sign Out