Goldman Sees Delayed Trump-Biden Election Call as a Trading Risk

(Bloomberg) -- Goldman Sachs Group Inc. says traders trying to game out the upcoming presidential campaign are missing one big risk: No decision on election night.

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It’s entirely plausible that Americans won’t know who their next president is on Nov. 5 or the days to come, considering President Joe Biden and former president Donald Trump are roughly even in national polls. And a prolonged decision could spur a surge in market volatility that investors aren’t pricing in, said David Kostin, the bank’s chief US equity strategist.

“I think there’s going to be some recounts,” Kostin said at the Goldman Sachs RIA Professional Investor Forum in New York on Thursday.

Last Friday, Goldman strategists led by Kostin said in a note to clients that while many investors believe it’s too early to position for election outcomes, a close election has its own risks that volatility markets, based on the VIX futures curve, aren’t taking into account.

S&P 500 Index options are showing little evidence of outsized positioning around the election. At-the-money implied volatility for contracts expiring Nov. 15 is less than a percentage point above mid-October options, little changed from a month ago.

While the VIX futures curve shows a premium for October contracts, which are based on S&P options after the election, that’s held steady over the past couple of months since the contract started trading.

Goldman advised clients who believe an election winner won’t be decided for more than 15 days to consider owning November VIX contracts, which represent implied volatility through mid-December and trade below October contracts.

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