VIX Election Trading Strategy

With the US election comes volatility in the market. Volatility can be scary, but it can introduce opportunity. This opportunity is what I will discuss today - welcome to the VIX Election Trading Strategy!

The VIX is a popular volatility index "used as a barometer for market uncertainty, providing market participants and observers" (CBOE) a measure for market sentiment. Also called the "fear gauge" or "fear index" this index helps investor understand the sentiment in the market and potentially hedge against market downfall.

The VIX is a math equation. So how can one trade it? Through futures and options, investors can speculate whether the VIX will increase or decline. Popular futures include ProShares Ultra VIX Short-Term Futures ETF (UVXY) and Barclays iPath Series B S P 500 VIX (VXX).

So why even care about the VIX and elections? Well, election introduce uncertainty as the nation comes to find out who the next president of the US will be. This binary outcome can have cascading effects on future economic policy, world affairs, and national sentiment.

So, let's look into the data and discover trends in VIX Futures from previous elections.

Previous UVXY Trends During Election Years

UVXY During 2012 Election

This chart shows the UVXY during the 2012 Election fall months. Overall, we see a decline in the UVXY however, a noticeable spike occurs in the middle of October with a sharp decline prior to and after the election. The UVXY experienced a 28% jump prior to election; however, once the nation declared the new president and the market stopped speculation, the UVXY dropped 44%.

A similar trend occurs in 2016 and 2020 where the UVXY experiences a trough in the middle of October, then a spike with a peak near end-of-month October, and finally a drop in the UVXY after the election.

UVXY During 2016 Election

UVXY During 2020 Election

How to Execute this VIX Election Trading Strategy?

We may experience a similar trend in the UVXY for the upcoming 2024 presidential election. A potential entry point into the UVXY is the middle of October around October 12th where the UVXY in the past devalued into a trough. An exit strategy may be to sell the UVXY near the end of October around October 28th. Finally, if you want to double up in this trade, you could enter a position in the SVIX after the election results. The SVIX is an inverse volatility product; The SVIX goes up in value when the VIX goes down in value.

Want to learn more about this potential, aggressive trading strategy? Watch my YouTube video here! How to Trade the Stock Market During Presidential Election #tradingstrategy #election #election2024 - YouTube

Thank you for reading and visiting Intrendias!

*Intrendias is not financial advice.