Learnings from Trading Elections

I have been following markets since last 3-4 yrs but haven’t traded elections before. As an option buyer dealing with IV crush is going to be crucial to make money.

I do have a view on markets based on technicals and would like to play it but I’m only concerned with huge IV crush that’ll happen post results. I’ve done some historical analysis to try to insulate from it somewhat but still analyzing and actually experiencing are very different.

If some you experienced guys over here can share your experience trading elections, it would be a great learning experience for all of us. I’m specifically looking at getting protected from IV crush as an option buyer but other learnings might be helpful.

I would suggest after seeing 2 elections to stay away from going into election results with positions, if you are compulsive trader then take very light positions. Markets will keep giving opportunities. This way you will have less tension and your capital will be protected and will get experience also.

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Yes I mean I don’t want to gamble. Like a lot of people say just buy a straddle/strangle since fall in one either call or put would be offset by gains in another. I know that’s complete BS and you’ll loose money both ways.

I’m not a complete noob and have traded high VIX events like budgets for last 3 yrs now and they have been very profitable. I agree, sitting on cash and not trading is also a position which I did in 2023 budget, but everytime I expect a significant delta move like I did in 2022 and especially in 2021, it’s a really good opportunity to make money.

I expect a significant delta move this time as well but I totally accept that trading budgets and elections are very different and hence I want to gain knowledge from other’s experiences. I do understand the impact of IV crush for which I have some small ways to insulate from it but I want to learn from practical experience of others who have traded elections previously.

Maybe let’s start a discussion trying to discuss about it, presenting each others view points and analysis and a healthy debating environment for it.

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You could sell 3 percent away option. Obviously this would mean your profits are capped.
Either you have to give higher premium for unlimited return or cap the profits and take lower risk.

Let’s just stop treating every trader who posts here like a noob, can we?

He is asking a valid question from someone who has experienced it first hand. Prescribing someone to stay off isn’t the right thing to do here. There are traders who wait for such events as they are money milking opportunities for them. If you can’t make money on events, is it like nobody can? Everyone has a different risk appetite.

If people don’t get answers to their queries and only prescriptions to stay aside, what’s the point of this forum anyway?

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I just gave my opinion after seeing 2 elections, my point is not final and I can be right or wrong, Everyone should express their opinion freely ,so I did. According to me staying away or lite is good before election event for other they can take directional bet, for another selling straddle maybe.

Last 2 times if I remember correctly vix was around 30’s before results, this time it is only 20 as of today, this one change I noticed from last time.

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Yes, this is like the obvious strategy everyone employs. It’s a way to enjoy IV crush.

But this goes against my thesis of a one-sided significant delta move in the spot as per my analysis. Since I expect a one-sided move, I really want to take on more risk and go long options. Just the IV crush that concerns me.

I did some historical analysis and saw that VIX falls roughly 15% on exit polls, 30% on counting date and further 20-25% on the next day of results. There’s a 30% fall after that as well but that spans atleast 3-4 weeks which means effect on option premiums is lot lesser if there’s good delta move. Seems like going long options would be better after the next couple of hours of result date+1, isn’t it? Would like to play only intraday before that.

Thanks, exactly, these events are great to trade as per the experience of trading budgets that I had. Elections are way harder, I agree though.

I just came here recently and don’t see much stuff being discussed related to trading. Like different trading styles, strategies, understanding daily participants data and different technical analysis view points on the same charts. Do you know of any other communities where this happens? Slack, discord, whatsapp anywhere, just don’t want to join scammy telegram bots.

Not sure, if enough people are actually interested in this, but if they are we can take an initiative for a Slack community to discuss charts, view points, participants data etc. Also have you traded elections before? Would love if you can share your experience.

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Yes, though there’s still ~3 weeks pending during which we can see ~25-30% rise in VIX, taking it to 26-27 level.

Though you’re correct, VIX will be lower than previous elections and rightly so. In 2014, it went upto ~37 and in 2019, it was ~30. I don’t expect it to cross 26-27 level this time at maximum. The reason is pretty obvious - the opposition presents lesser and lesser threat to ruling party with their approach to elections in each upcoming election. Hence the probability of hung parliament should be lesser, signalling stability.

This won’t effect the IV crush though. From ~26, VIX could fall to 10 in a month given clear stability, out of which, the drop from 26 to 13 - might happen in the first couple of days itself. Concerning for an option buyer :smiling_face_with_tear:

Let me give my reasoning, it is just my personal opinion and can be completely wrong.

  1. Couple of weeks back Indian Vix was 10, in two weeks it moved to 20, I also assume it can go to around 25 before election results, so after results it can again quickly move to 10 to 15 if all other factors remain constant and BJP forms government.
  2. Currently US Vix is 13,lowest in last few months, so when US Vix is so low Indian Vix can’t stay in 20s for long time unless results came totally unexpected.
  3. Market consensus is BJP will form government but the worry is only about majority. Anything opposite to this happens Vix can shoot to 40 also instantly.
  4. I don’t have guts to carry shorts on either side, maybe can carry lite option longs, instead I am trading results with equity, I will be carrying high growth, risky mid caps and few SME stocks as these can move a lot if results are in favor and can fall in results are not in favor but at least I am ready to hold them for couple of years which option longs won’t provide.
  5. Also currently FPIs are holdings highest concentration in puts in last 5 years, they are worried results can surprise so loading on puts to hedge their portfolios. Can check this. And if results are in BJP favor( 360 plus for NDA) then maybe we can see major short covering rally also, in this case option long calls can see super move, is what I think.
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I think this community is more focused on Zerodha - their feature requests, issues etc. I haven’t found any forums so far where strategy related discussions happen. Though I’d say not all telegram groups are scammy and some do allow healthy debates but centered on that group’s focal point though.

Creating and moderating such a community would be very challenging in my view. I have been a part of some before but discussions keep getting off-track leading to too much noise which ultimately becomes the reason to exit.

No I have not traded elections and I’m not sure if there are any members of this forum who have done that in real sense [I was looking for them too in this thread but got something else].

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After seeing modi interview on NDTV about markets even I am planning on taking some calls before results, I am good even if I lost in those though as I will be taking a small portion only.

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I believe less on news when trading, price is everything as per technicals. “Bhaav bhagwan che”.

There’s a significant upmove pending in the markets and markets are just waiting for election news as an excuse to rally up. That being said I probably believe markets may fall significantly from the high on just 4th (when most think up, it falls). I’m strongly bullish for entire Jun month though. Should also be good to buy it on 31 before exit poll.

Historical analysis tells markets would rise on exit polls, may fall from high on result, and then a rally spanning the month. Vix would also favour buying just after result as the crash after that won’t be that steep.

Personally, I’ve made a plan based on the above as an option buyer as per my risk appetite. Would try to share the result post election and love to learn from others as well.

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Trading for some time now - but my first election trading cycle as well. I think Indian market is rigged to a large extent now (or lets say retailers positions are easily evident to big guys) as per my experience of how price action has changed over last few years - with weekly expiries getting crazy on expiry day (especially monthly ones). Read Jane street case on google for context - and that is probably just one fund, there may be others.
Personally I don’t trade weeklies anymore - but use other maturities.

Anyways coming to elections - I think since its such a big event all big guys have (most probably) already figured out retail positioning. With VIX rising in run-up to elections - the primary ‘most desired’ outcome of this event for big guys in the market (whatever be the result) is likely to be VIX crush. Any buy positions (of either PE/CE) make sense only post the VIX crush.
I do both sell and buying strategies - so for now I’m trying to do more of sell strategies. With VIX at 20’ish I suspect big guys have sold options from top side (sold calls) - so my expectation is limited upmove - until at least budget (that takes us to Jul) - which implies all option buys (for May and June) die a slow death.
But lets see - my guess is as good as the next persons :slight_smile:

If it does come true - give me a thumbs up :slight_smile:

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so you are trading in near month options currently?