Why Election Jitters Have Traders Chasing Butterflies

Heading into presidential elections, traders typically try to hedge their bets based on which candidate might win. This time around, U.S. markets are increasingly trying to gauge how big of a mess the aftermath might be. With President Donald Trump all but promising to dispute the results if he loses -- on top of coronavirus case counts creeping higher and stalled stimulus negotiations -- the Nov. 3 election has already become the most expensive event to hedge against ever. Here’s a look at the factors driving trades not just in the so-called volatility markets, but in currencies, gold and even the Treasuries markets.

Basically, how dramatically prices rise and fall in financial markets. Downward moves tend to attract more attention, as they typically fuel concern about what’s coming next. The most well-known turbulence tracker is the Cboe Volatility Index, or VIX, which is often called the market’s “fear gauge” because it tends to climb when stocks go down. It’s calculated based on how much traders are paying for options and other contracts used to hedge against big swings in prices. The more they’re willing to pay, the more volatility they expect.