The upcoming U.S. presidential election in November 2024 is expected to cause significant market volatility, particularly in the weeks leading up to the event. This volatility is often referred to as the "index of fear" and tends to increase as uncertainty looms.
Historical data shows an inverse relationship between the VIX volatility index and the S&P 500, with volatility spikes typically leading to declines in the S&P 500. Traders can take advantage of this inverse correlation by taking short positions on the VIX and going long on the S&P 500.
Examining historical trends reveals that volatility tends to peak just before and after U.S. presidential elections. During these periods, traders may find opportunities by leveraging the inverse correlation between historical volatility and the U.S. general market index.
Effective risk management becomes crucial for traders during election years, and strategies such as hedging existing portfolios with short positions and diversifying strategies can help mitigate risk. Traders must remain vigilant and adjust their strategies based on volatility trends and the interplay between political events and market dynamics.