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Investors are taking advantage of the high implied volatility ahead of the election, especially in assets like Bitcoin and gold, and expect normalization soon.
Meme assets like DJT could see post-election declines as volatility declines and market makers adjust their delta positions.
Bitcoin’s volatility could continue to rise post-election, while Ethereum and gold are facing resistance due to hedging policies of market makers.
As the 2024 US presidential election results approach, financial markets are seeing an increase in trading strategies focused on selling volatility. This trend is evident in assets like Bitcoin (BTC) and Gold (GLD), where investors are taking advantage of high implied volatility (IV) ahead of the election results. Additionally, analysts are predicting that assets with significant volatility, particularly memecoins and meme stocks, could experience significant corrections post-election.
Selling the Truth: Election Day Strategy
The concept of “selling the truth” is common after major events, where the removal of uncertainty often triggers moves by institutional investors to take profits or limit losses. As a result, prices of high-performing assets often normalize after the event. With memecoins and meme stocks like DJT, this normalization is almost inevitable and is driven by statistical arbitrage strategies and volatility crashes.
For example, DJT’s 30-day near-the-money IV has risen over 300%, reflecting extreme skew. As election uncertainty fades, market makers are likely to reduce their delta positions, resulting in intense price swings due to lack of liquidity. As a result, this creates unique trading opportunities as extreme implied volatility levels recede.
BTC and GLD: Controlled Volatility Reduction Expected
Unlike meme assets, Bitcoin and gold are expected to experience controlled declines in volatility. Unlike memecoins, these assets exhibit a distribution of returns closer to normal levels. Therefore, both assets may stabilize sooner and are more likely to sustain their post-election bullish momentum.
Bitcoin, with stronger price momentum, has more negative gamma, meaning hedging creates stronger volatility reactions. Gold, on the other hand, has positive gamma, reducing price gains, creating resistance during uptrends, and stabilizing prices.
Ethereum (ETH) mirrors the volatility characteristics of gold, especially with the gamma peak concentrated around $2.5-2.6k. Selling pressure from market makers is expected to limit ETH’s price growth, driven by weekly options hedging behavior.
Market Dynamics and Opportunities
Volatility selling appears positive because market maker hedging controls price action across assets. This approach provides limited price direction and makes direct trades difficult. However, a deeply backward-looking IV term structure suggests a rare opportunity to execute calendar trades.
By selling front-end vol and buying far-end vol, traders can take advantage of the expected normalization of the term structure post-election. Expect the IV term structure to gradually stabilize as the election results become more final.
