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The Real Election-Year Cycle: Buy Volatility In August, Sell In October

Tyler Durden's picture




 

It seems everyone and their pet Goldfish has been brainwashed into the belief that because it's an election year, we have to buy stocks. There is plenty of noise in that empirical study with some large outliers. However, Credit Suisse's Harley Bassman notes there is another cycle in election years - that of implied volatility - and he adds "the clearly defined economic nature of this election should increase implied volatility on most financial assets." As the chart below shows, volatilities tend to trough in August and peak in October into a November election - only to fall once again from two-weeks before to one week after the election. The pattern is clear.

 

Via Credit Suisse - with our annotations to highlight the trend

 

Source: Credit Suisse

 

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Fri, 08/24/2012 - 14:51 | 2734778 Precious
Precious's picture

Past performance is not a reliable indicator of future returns.

 

Old America

- Right to a lawyer

- Right to remain silent

- Innocent until proven guilty

 

New America

- Right to be assassinated

- Right to receive anal cavity search

- Right to real property seizure for any purpose

 

Fri, 08/24/2012 - 14:52 | 2734793 buzzsaw99
buzzsaw99's picture

- Right to receive anal cavity search

for free? what a country!

Fri, 08/24/2012 - 15:06 | 2734860 ghengis86
ghengis86's picture

so, what you're saying is this is a 'free' country afterall?  Home of the 'free' has an entirely new meaning in New Amerika!!!

Fri, 08/24/2012 - 14:56 | 2734808 SafelyGraze
SafelyGraze's picture

cynical dystopian!

you now have rights to healthcare and to a minimum standard of living

no need for lawyers, etc

free "life is good" t-shirts for everybody

Fri, 08/24/2012 - 16:12 | 2735154 monad
monad's picture

If by healthcare you mean the right to be to be poisoned, experimented on cruelly & euthanised, yes we do. But as documented by PETA, we already had that before BO. Its been obvious since S&L bailout that the plan has been to rob the boomers to pay the kids to push the boomers under the bus. Its got that Viet Cong feel to it... Thank Kissinger for that, but especially his agents who have carried it out: the Bushs, Clintons and all their friends.

Fri, 08/24/2012 - 19:27 | 2735818 mjcOH1
mjcOH1's picture

You've got a right to taxpayer subsidized killing of your unborn child - whether or not you;re here legally.   Look on the bright side.

Fri, 08/24/2012 - 14:52 | 2734797 Jlmadyson
Jlmadyson's picture

Can I get the implied spike for Greece exit?

Fri, 08/24/2012 - 14:57 | 2734816 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Right to bear arms ... uh, wait, what's Mike Bloomberg saying? Oh.

Crazy shot a co worker three times. One was left in Mag. Mag held eight. That means he shot 4 more rounds.

Cops showed up. Fired fourteen rounds at crazy guy.

How many people were wounded? By whom?

Fri, 08/24/2012 - 15:03 | 2734846 LawsofPhysics
LawsofPhysics's picture

You are asking too many questions citizen, please come with us.

Fri, 08/24/2012 - 15:07 | 2734856 HarryM
HarryM's picture

NYC wimp cops probably shot the rest

 

They shoot like coke'd up rappers

(Empty their guns at each other for 6 feet apart and neither one gets hit)

Fri, 08/24/2012 - 15:09 | 2734870 ghengis86
ghengis86's picture

please don't insult the coked-up rappers

Fri, 08/24/2012 - 15:14 | 2734891 HarryM
HarryM's picture

LOL - just be glad the cops don't carry full Auto's.

You'd have some 4' 11" female cop riding one down the block like a jack hammer

Fri, 08/24/2012 - 15:19 | 2734917 tip e. canoe
tip e. canoe's picture

interesting.

Fri, 08/24/2012 - 15:04 | 2734847 HD
HD's picture

My pet goldfish got out of stocks years ago. Now he just plays the ponies...

Fri, 08/24/2012 - 15:12 | 2734879 no life
no life's picture

Love that Blanchard ad you guys have up... Way more interesting than the market at this point... but, maybe it's just me..

Fri, 08/24/2012 - 15:26 | 2734956 magpie
magpie's picture

This giant fish (not whale) would like to short Australia in the short term (next month), but there is no effective way doing so except FX trading.

Fri, 08/24/2012 - 18:08 | 2735574 Umh
Umh's picture

IAF, the miners maybe.

Fri, 08/24/2012 - 16:13 | 2735200 This is the end
This is the end's picture

You are looking at history when markets were not so manipulated and controlled. Germany is going to go the way of Japan and US and print their way to prosperity. Honestly, from a bureaucrat's perspective printing is awesome. You can spend as much as you want at ever lower interest rates and buy votes with food stamps, welfare checks, pension payments, not raise taxes and pay off all your friends with "stimulus" payments. The only reason Europe has "problems" is because Greece, Spain and Italy cannot print money. That problem will be going away in September. 

It will crash horribly in the end but who cares, hopefully you (the bureaucrat) won't be there when it does go. In the meantime party on what fun to spend other people's money. It can go a lot longer than we think, look at Japan and US. We are in much worse fiscal shape than any of the European countries and yet enjoy sub 1% interest rates even though we run 10% deficits and have 100% and over 200%! debt loads. No one in Europe is that bad yet. Party on until we can't....

Fri, 08/24/2012 - 16:28 | 2735271 houserich
houserich's picture

VXX oven is stoked.

Fri, 08/24/2012 - 17:13 | 2735393 Shelby Moore III
Shelby Moore III's picture

 

Several factors indicating a stock market crash just before or after election

Documented facts:

1. Volatility bottoms in Aug and can skyrocket by election (see 2008!):

http://www.zerohedge.com/news/real-election-year-cycle-buy-volatility-au...

2. Low volatility and low volume (everyone on vacation with lots of talk but no action on global QE) pushed up the global stock markets in August:

http://www.zerohedge.com/news/why-volume-matters-incredible-lightness-ma...

Declining volatility (the main factor) combined with rising prices, have destroyed short options, causing a short covering rally. Remember options are priced based on volatility and price expectations.

3. Fed will not QE3 until stock market crashes (neither will ECB nor China):

http://www.zerohedge.com/news/bernanke-rescue-there-scope-further-action...

4. Stock market can decline in Sept/Oct in an election year, but usually only if the incumbant loses:

http://moneymorning.com/2012/08/21/election-2012-obamas-odds-are-pretty-...

5. Voters assert that the economy can only get better if their choice wins, thus giving political cover for a stock market crash around the election:

http://www.zerohedge.com/news/other-side

I saw a Yahoo Finance poll several hours ago, where roughly 30% said economy will get better if Obama wins, another roughly 30% for Romney, and the rest saying economy won't get better either way.

Also this:

http://www.thelantern.com/campus/barack-obama-mitt-romney-about-equal-in...

6. Reality on the fiscal cliff will bite consciousness, once the election preoccuption has cleared:

http://finance.yahoo.com/news/fiscal-cliff-why-markets-havent-142511511....

 

Fri, 08/24/2012 - 18:05 | 2735568 Duke Dog
Duke Dog's picture

Chart looks like a nest of water mocassins during spring breeding season.

Sat, 08/25/2012 - 02:48 | 2736394 accidentje
accidentje's picture

Nice recap, Shelby!

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