The Pak Banker

Investors ready for big market moves

- NEW YORK -AP

Market volatility is back and investors expect more wild swings in the coming weeks and months as the US presidenti­al election closes in. Regardless of who wins the Nov. 3 election, some market watchers say, markets are likely to grow more turbulent.

Economic uncertaint­y resulting from the coronaviru­s pandemic still looms large, and the possibilit­y of a delayed vote count due to a large number of mail-in ballots has also unsettled some investors. Moreover, a buildup of positions in big tech-related stocks has increased risk, as seen in a sharp market sell-off

"This is just a situation where all the conditions are ripe for an extraordin­ary profit" from volatility, said James McDonald, chief executive of Los Angelesbas­ed hedge fund Hercules Investment­s.

The Cboe Volatility Index has climbed over the last two weeks, first as investors chased further upside in U.S. stocks through call options and then as they sought protection against a tumble in indexes at record highs. On Thursday, the VIX jumped to its highest level in nearly 10 weeks as the S&P 500 .SPX fell 3.5%.Several investors say that the VIX could climb further as the election approaches, especially given that certain indicators show a tightening race. In betting markets, Democratic nominee Joe Biden's lead over President Donald Trump has significan­tly narrowed, according to data from RealClearP­olitics.

Indeed, second-month futures VXc2 on the Cboe Volatility Index , which expire in late October, point to expectatio­ns for bigger market moves around the election period. The gap between second-month futures and the VIX widened to a record high earlier this week. Recent history shows that election results can have powerful effects on asset prices. Trump's largely unexpected victory set off violent swings in markets on election night in 2016, with gold, the Mexican peso and stock futures among the assets experienci­ng wild gyrations.

Earlier that year, the British pound GBP= plunged to its lowest level against the dollar =USD in decades after the United Kingdom voted to leave the European Union.

This time around, a drawn-out count of mailedin ballots could be one key catalyst for volatility, said Arnim Holzer, macro and correlatio­n defense strategist at EAB Investment Group. "Volatility could actually last … for longer because of the nature of the election process itself, no matter who wins," Holzer said.

McDonald, meanwhile, has bought December and June call options on the ProShares Ultra VIX ShortTerm Futures ETF (UVXY.P), which similarly rises alongside volatility. He said he had already profited from Thursday's spike in volatility, which sent UVXY 20% higher to $28.90, and he anticipate­s that the ETF will rise to $40 before the end of the year. By actively trading UVXY as it rises, McDonald believes he can make a $1 billion profit on his $55 million investment. If UVXY were to slump below $10 close to year-end, however, McDonald would lose his remaining investment in the December calls.

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