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SPY options can help us calculate the “expected move” in the S&P500 within a 70% degree of reliability for this binary election event.

The way to calculate these probabilities is to take the ATM straddle, plus the 1st OTM strangle and then divide the sum by 2. You could also take the straddle for ATM calls and puts and multiply by 85%.

  • SPY – (NOV16) 213 Straddle             = 6.16
  • SPY – (NOV16) 214C/212P Strangle = 5.25
  • Result 6.16 + 5.25  / 2                        = 5.70

Let’s use a straddle for comparison.

(213) ATM = 6.26 x 85%  yields                  = 5.32

These options expire on November 18th. Considering the huge move on Monday, I’m anticipating a fade today. 213.00 is the level where most blocks trades occurred over the past couple of weeks. It’s also where VBP starts to build dramatically.

Post election is another story. I am of the opinion that its best to wait at least a week for the markets to yield a reliable direction. Trading within this first week yields mixed results as relief rallies typically don’t last in the three days following an election. 214.50 needs to be broken then 218.50 to surmount VBP resistance. If that should occur, it would be a testament to big money investors putting money to work.

If we fail to move above 213.00 today, 209.00 could be retested.


“In the first week following the last 22 presidential elections, the S&P 500 averaged a 1 percent decline, and when only the last 10 elections are considered, the results are even worse. Going back to Jimmy Carter’s election, seven of the first weeks post-election were negative, with an average 2 percent decline, meaning any rally was short lived.” – source Bespoke

Bottom line? This is going to be one to remember. I plan to remain idle today.

Happy Trading – Vinny