One Trader's Plan To Not Let The French Election Ruin His Weekend

Tyler Durden's picture

It's another one of 'those' weekends again, but as Bloomberg's Mark Cudmore notes, anecdotally, FX traders are significantly less excited by the French presidential election than the commentariat (may exacerbate the reaction to any surprise, though it doesn’t increase its likelihood). With options activity at record highs, what should be the game plan for the weekend if you’re a European-based investor?

In the last week of trading before the French election, investors increased bets for European stock volatility, sending the volume of VStoxx Index (European VIX) call options to a record.

The measure that tracks expectations for turbulence in euro-area shares is set for a fifth straight weekly gain, the longest streak since 2014. It hit its highest level since the aftermath of the Brexit vote, but as Mark Cudmore explains, with so much hedging activity, perhaps there is another way...

Bank strategists and sales people are almost as hyped up as journalists about this vote. However, those who actually manage risk aren’t rushing to alter their usual working habits for Sunday’s election.

 

Every major bank mans the early Monday Auckland FX opening as standard practice. Given the dearth of liquidity, most traders in Europe see little benefit from getting involved in those early hours.

 

I sympathize. I expect the event to be anti-climactic and positive for markets. As one reader replied, even negative outcomes may be faded as the narrative quickly shifts to focus on the fact that neither Le Pen nor Melenchon would have the parliamentary support to call a referendum on the euro anyway.

So, what should be the game plan for the weekend if you’re a European-based investor?

  • Enjoy your Saturday. No polls can be published after Friday midnight
  • Enjoy most of your Sunday. Don’t worry about early turnout information. It would have to provide some tremendous shock to seriously change the outcome and there’s no market to react anyway. If you’re based in the U.K., there’s an exciting FA Cup semi-final to watch
  • At 8 p.m. in Paris on Sunday you can check your phone for preliminary projections
  • If Macron and Fillon look set for a run-off, prepare for a significant risk rally on Monday
  • If Le Pen looks like getting more than 30%, or Melenchon is within 2% of the top two spots, stay tuned to the action.
  • If the results point to anything else, stop worrying and enjoy your evening

It’s only if Le Pen eventually wins more than 35% of the vote or Melenchon gets through to the second round that markets will react badly. Even then, don’t let any extreme euro move panic you.

If it crashes too far on low liquidity, that move will be partially faded by the European day.

Notably, options market implied distribution is tilted to a positive shift in the euro over the next week...

Good luck!

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VinceFostersGhost's picture

 

 

One Trader's Plan To Not Let The French Election Ruin His Weekend

 

Well......it might anyway.....I would consider it.

 

Don't try this at home.....I'm almost a professional.

aPlayer's picture

The shooting in Paris yesterday could move people away from Le Pen because at times of instability people tend to stick with the status quo and not opt for new people.

VinceFostersGhost's picture

 

 

No.....I think they'll vote for person that doesn't want any more muslims.

 

I wonder who that might be?

spastic_colon's picture

yes this....the plan would be to be able to trade after market in options and futures then dump it on retail during the ensuing face ripping rally Monday thru 2017

Jacopo's picture

Brexit... Market came back within days

Trump... Market rallied within hours

Italian Referendum... Markety digested this in minutes

French election... Only HFT guys will notice

... some other unexpected event: Market tumbles 20% 

Ghordius's picture

well, FX traders have a reason why they are less excited then the punditry: France uses the EUR

if it was using the French Franc, now, that would be a completely different matter, and we would witness that currency going up and down like a yoyo, trending in the way foreign/global speculation (then most FX traders betting on the French Franc would not be French) would think (not know, just think like the average trader next door) the trend would be

see the British Pound lately as example

ThrowAwayYourTV's picture

Why should I give a shit about what happens in France? Used to be the news came on at 6PM and was over by 6:30PM. Now theres nothing but news about everything everywhere.

What does any of it have to do with me? Nothing! All tv acting is all it is and the sheep go OMG! OMG! OMG!

spastic_colon's picture

yes true....but for some reason people are gluttons for punishment; with reality being so different now from logic in the markets its fun to watch the ass raping live on tv in real time when TPTB pulls the rug / s

Just Another Vietnam Vet's picture

The recent shooting in Paris may have been the last straw that  elected the one person that is for France,

French Citizens, and less of the terrorist immigration.   Seems to make sense.

Then its an upside down world with negaive int rates, fake news, on and on.