A 7% drop in a popular S&P 500 ETF is possible in a contested election scenario based on how options are trading, Susquehanna says
- The popular SPDR S&P 500 ETF Trust — or SPY, which tracks the benchmark index — could drop 7% by the end of this week in a contested
electionscenario, according to Susquehanna International Group's Chris Murphy.
- The potential price drop is based on the implied move of an at-the-money options straddle for SPY that expires at the end of the week, Murphy said in a note on Monday.
- Based on the same implied move analysis, SPY could move 2.8% higher if the election result is decisive and not contested, according to Murphy.
Marketsappear comfortable with either candidate initially and the removal of election uncertainty could be a positive," Murphy said.
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Investors often look to the options market for potential signals as to where the S&P 500 might trade in the future.
Looking at the implied move of an at-the-money options straddle for the SPDR S&P 500 ETF Trust (SPY) that expires this Friday, Susquehanna International Group's Chris Murphy estimated that in the event of a contested election, the underlying S&P 500 could drop 7% by the end of this week.That's according to a note sent to clients on Monday and an updated analysis shared with Business Insider on Tuesday.
Utilizing data from PredictIt.org, Murphy assigned a 75% probability of a clear winner of the election, and a 25% probability of a contested outcome.Assigning those probabilities to the two potential outcomes of a clear winner or contested election, and utilizing the 3.6% implied move for this week in SPY, it ultimately comes out to a potential 2.8% move higher on a clear winner. It also implies a potential 7% decline by the end of this week, in the event of a contested election, according to Murphy. "In general markets appear comfortable with either candidate initially and the removal of election uncertainty could be a positive," Murphy said.
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