Options Trading More Valuable Than Ever in these Politically Volatile Months

October 7, 2020

5 min read

Dear traders,

Volatility seems to be back on the market. During the last weeks, the movements of the US market were mainly characterized by the news.

The first major topic was related to the rumors on the additional $2 Trillion package to stimulate the recovery of the economy after COVID-19.

On one day, politicians seemed to be close to figuring out how to spend it while, the day after, news came out stating the parties were far apart from an agreement. Let’s review.

US Politics Remains Volatile as Ever

The second major concern was given by president Trump, along with the First Lady Melania, which tested positive for COVID-19. Fortunately, after a couple of days, president Trump stated he was doing well and he was leaving the hospital.

The US market reacted quite strongly on the evolution of these two major topics moving up and down driven by good and bad news respectively. In addition, this effect will be even magnified as we move towards the presidential election on November 3rd.

During the last days, the SPX tested from below the important resistance level in the 3400 area waiting for some good news to provide the right power to fly towards the all-time highs.

VIX Showing Bullish Momentum

Concerning volatility, the VIX index is confirming a slight increment in the last days testing from below the 200-days moving average. As previously mentioned, volatility is expected to increase up to the presidential election at the beginning of November.

From an operative point of view, options traders can take advantage, even from these periods when volatility is expected to increase. How?

Through specific strategies characterized by a controlled risk and by the possibility of adjusting the original position with the aim of reducing as much as possible the initial risk obtaining, as a direct consequence, a good profit.

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