I want to cover how to play the stock market this election week based on the 3 outcomes that are possible on election day.
What are those outcomes?
Biden Win (currently favored, odds -200)
Trump Win (current underdog, odds +175)
Contested Election
The market is currently at unease because of the election and it needs a clear winner. Early on it seemed as Biden was going to win the election based on polls (if you believe in them) and the market was most likely pricing in the move. Trade deals would have been restored with Biden and the market wants this (as you know.. everytime we got close to a trade deal the market shot up, right now that is probably not likely with Trump as president). Biden's lead is diminishing currently and the market does not like this. Add to the factor COVID cases are surging again, it's adding fuel to the fire.
Three Outcomes Possible
If we get a clear Biden Win, the market will move higher after election day. The gains after election day rally may start to disappear as Trump will do as much as he can to create chaos before leaving.
If we get a clear Trump Win, the market will still move higher after election day (but to a lesser degree).
If we get a contested election, the market will crash MUCH harder than it has these past few days. We will clear the $SPY 320 support levels and move into low $300s or below. This is by far the WORST outcome possible. I would be prepared for this scenario as this will most likely affect your own portfolio unless you have hedged yourself. Purchasing Nov 6th or following week $SPY puts at $315-310P would make sense as a hedge against your entire portfolio.
You can except a lot of volatility until election day at this point, tomorrow does not look to be a green day with UK ordering a full month long shutdown. USA may very well likely have more shutdowns in certain areas of the country in the next 2-3 weeks, we are already seeing certain cities/counties and states take on more restrictions.
If your to stressed about your portfolio, take a look at this quick video on some Wallstreetbet Gamblers losing or making their entire account! Weekly Series starting!