By Saqib Iqbal Ahmed
NEW YORK (Reuters) - Six weeks ahead of the U.S. presidential election as opinion polls show a tightening race, traders in the options market have begun to position for more stock gyrations.
The Nov. 8 election is among the top issues on investors' minds, said Brian Bier, head of equity derivative sales and trading for Macro Risk Advisors.
"There has definitely been an increase in urgency in putting on hedges that would carry them (investors) through November," he said.
Goldman Sachs (NYSE:GS) notes a slight kink in the volatility term structure on S&P 500 equity options that is indicative of an uptick in hedging demand.
"While the overall level of S&P 500 implied volatility is low, the term structure is beginning to price the Nov. 8 presidential election," Goldman Sachs equity derivatives strategist Krag Gregory, said in a note on Monday.
The volatility term structure, which is calculated from prices of options with different expirations, reflects the market's expectation of future volatility of different time horizons.
Traders appear to have some focus on weekly options that expire right before and after election day on Nov. 8.
For S&P 500 Index options expiring on Nov. 11, the most immediate expiration after the election, traders show a slight preference for buying insurance against a decline in the market.
For this expiration, puts outnumber calls 2.2-to-1, compared with 1.9-to-1 for all expirations, per Thomson Reuters data.
A subdued volatility environment, which makes options relatively less pricey, may be helping drive some of the flow, Bier said.
Looking at S&P 500 options expiring on Nov. 4 and Nov. 11, they are currently pricing a 1.5 percent move in any direction from the election, according to Macro Risk Advisors.
While elections have historically been meaningful drivers of equity volatility, expectation for election-linked volatility has been conspicuous by its absence so far in this presidential election cycle.
The CBOE Volatility Index, the most widely followed options-based gauge of near-term investor anxiety, was at 14.40 on Monday, compared to the 13.3 average since late July after the two major parties anointed their candidates.
The degree to which VIX and VIX futures are muted ahead of Monday's presidential debate is surprising, Mandy Xu, equity derivatives strategist at Credit Suisse (SIX:CSGN), said in a note on Monday. Democrat Hillary Clinton and Republican Donald Trump face off on Monday at 9 p.m. ET (0100 GMT Tuesday).