JPM’s latest logic;
“Given the large earnings and election risk premia, we would have a general bias toward selling volatility on stocks into earnings and the election”.
TME agrees there are multiple “vol peaks” to sell…the biggest problem is becoming several big inv banks are all joining the same view. More on that later when we get closer to elections.
…should gold start spiking above the resistance levels, gold vol could easily pick up. GVZ is not “cheap” on an absolute basis, but it seems even the bulls have forgotten that gold can move sharply…
Why not a simple call spread in GLD as elections get closer?
Second chart shows pl scenario of a Nov 182/188 call spread.
1, Trading community carrying decent amount of exposure – traders have decent “skin in the game”…expect lower liquidity (TME comment here) and erratic price action
2, the post-election gains will not be absolute, but relative in the event of a clear move blue…we agree the take that a lot of re risking has taken place, reflation positions bigger now than going into 2016 elections, link here.
3, implied vols to reset post elections
4, GS is above consensus on growth for 2021…negative real rates and significant fiscal support…expect bond yields to rise…forecast significant upside for commodities…expects a vaccine before year end (goes “against” the latest vaccine “polls“) …valuation spreads between growth and value are at a record high.
EM to outperform in 2021 and like the Japan trade, Suga will deregulate and drive corp reform etc (recall Kolanivic’s most recent bullish call on Japan, here)
5, investor behaviour post elections – hungry for equities
For now equities seem mostly “chopping” around, but there are some old risks that could be reviving. Vaccine is one of them (FDA event to watch for next week very few are focusing on). Note the sharp move in super forecaster odds over past days pushing Vaccine “not before 1 July 2021” to 43% from 31%.