JPMorgan Strategist: Volatility Underpriced Ahead of Midterm Elections, Recommends VIX Call Spreads
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JPMorgan's strategy team warns that the options market is pricing midterm-election risk too calmly, recommending October-expiry VIX call spreads — with rate, energy, and AI macro risks stacking up, pre-election volatility has clear room to rise.
Why does JPMorgan say volatility is "underpriced"?
A team led by Dubravko Lakos-Bujas says implied volatility sits at low levels, well below where VIX has historically traded ahead of elections.
Rate moves, energy prices, and AI disruption are all "hanging over the market," yet options prices barely reflect them.
This means → the market is paying for calm, while strategists see a window where risk is mispriced.
What is the actual trade?
Bram Kaplan, JPMorgan's head of Americas equity-derivatives strategy, recommends buying October-expiry VIX call spreads.
The trade pays off in two scenarios: volatility rises naturally into the election, or a macro risk flares up.
In plain terms = you spend a small premium on a bet that "volatility will climb" — if markets start shaking hard, that bet cashes in.
What outcome is the market pricing in?
Barclays data shows the S&P 500 is expected to move roughly ±0.8% on November 4 (the day after voting) — a small swing.
Kalshi betting odds put a Democratic sweep of Congress at about 62%, with a split Congress at about 29%.
Wells Fargo strategists say investors treat the midterms as a "non-event" — a divided government means legislative gridlock, which actually lowers the risk of sharp market swings.
Who finds this calm "curious"?
James St. Aubin, CIO of Ocean Park Asset Management, notes that with Middle East tensions rising and the 10-year Treasury yield near its highest since 2002, unusually low expected volatility is "intriguing."
He sees this as a chance to hedge both election volatility and rate risk at low cost.
Steve Sosnick, chief strategist at Interactive Brokers, acknowledges VIX futures show a slight pre-election bump, but the premium is "not that big."
Which other firms have already moved?
Evercore ISI recommended buying S&P 500 straddles — a combined call-and-put position that profits from a big move in either direction — back in September.
The CBOE launched Tuesday-expiry S&P 500 options in April 2022, giving traders a more precise tool to bet on election outcomes.
This reflects a broader view: multiple firms see volatility as underpriced — they just differ on the instrument and timing.
What makes this year unusual?
Historical pattern: since 1950, the S&P 500 has averaged a 5.2% gain in midterm-election years, typically drifting flat or lower before October, then rallying.
This year the S&P 500 is already up 13%, far above the historical average and well ahead of the usual rhythm.
This means → the market has already "used up" the average election-year gain; whether volatility can stay this low through Q4 is the central open question.
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