“The presidential election is three months away, but some traders are preparing for the possibility that prolonged political uncertainty will stoke stock-market mayhem. The investors are going beyond the normal hedging ahead of a potential change in power in Washington. Instead they are betting on volatility and a possible market tumble later in the year” reports the Wall Street Journal.

“Among their concerns: President Trump could try to delay the election or disrupt mail-in voting, as well as the chance that a result remains unclear for weeks after polls close. The election worries amplify existing concerns about the weak economy, a possible second wave of coronavirus infections in the fall and the highflying market. The bearish bet is that turmoil around the election hits the already fragile economy as the cooler months bring on more infections, all hitting the stock market that is priced for a recovery. The S&P 500 has advanced 4.4% this year to close at 3372.85 Friday. Its recovery since its March lows has powered the best 100-day stretch since 1933. Eric Metz, chief investment officer at investment firm SpiderRock Advisors, has tapped a stock-options trade for clients that would profit if the S&P 500 drops up to 25% from its current level through early next year. The hedge involves buying one bearish put option tied to the S&P 500 while selling another. Concerns about the broader economy and the stock market’s recent rally also are fueling interest in such trades, he said. ‘We’re focusing on January,’ said Mr. Metz. ‘Giving yourself a little bit more time…will prove prudent for all the unforeseen or unknown things that could happen.'”