Tuesday’s election is being viewed as possibly the most impactful mid-term vote in decades.  Many consider its referendum on the direction that the U.S. will take social, economic and foreign policy issues.

The stock market seems to be bracing for results — much like the way that investors await earnings releases for specific companies.

I think we can set up a trade to profit from the election as we would from an earnings report.

Indeed, if we look back on prior pivotal votes such as Brexit, and the last presidential election, we can see that the options market behaved similarly to an earnings release; implied volatility rose dramatically heading into the events and then dropped following the results.

stock market performance chart

We now have two pieces of the puzzle; we expect a decline in implied volatility and for the market to move higher in coming weeks.

A strategy that would benefit from such a scenario is a ratio call spread which consists of buying near-the-money calls and selling a greater number of further out-of-the-money calls.

An example would be, using the SPDR 500 Trust, that one could buy one December 273 call for around $7.50 per contract, then sell 3 contracts of the December 285 calls for what would cost around $2.00 per contract.

The total net debit of the contract position would be $1.50 or $150 per 1×3 contract spreads. The potential profit is $10.50, or 700%, if shares are at the 285 strike on the December 21st expiration.

Now go out and vote!

9 "Must Own" Growth Stocks For 2019

Get Free Updates

Join thousands of investors who get the latest news, insights and top rated picks from StockNews.com!

Top Stories on StockNews.com

NASDAQ: CSCO | Cisco Systems, Inc. News, Ratings, and Charts

Cisco Systems (CSCO) could be the beneficiary of the US blacklisting Huawei

5G is about the all-important future of connected things. Trump wants to make sure Huawei is not the running to dominate it.
NYSE: BA | Boeing Company (The) Common Stock News, Ratings, and Charts

Boeing's (BA) stock sees gains on report that the 737 Max jet disaster may have been linked to bird collision

It is being reported that a Boeing executive raised the issue of a bird strike triggering a sensor that sent faulty data to pilots.
: bynd | Beyond Meat, Inc. - Common stock News, Ratings, and Charts

Analyst with notable track record, predicts a reversal for Beyond Meat Inc.'s (BYND) stock

He has set a target of $28.40 on the stock, about 67 percent below the current price.
: CGC | Canopy Growth Corporation Common Stock News, Ratings, and Charts

Canopy Growth (CGC) names a new CFO

Canadian marijuana manufacturer Canopy Growth appoints former Constellation Brands' senior executive Mike Lee as the company's acting chief financial officer.
: ACB | Aurora Cannabis Inc. Common Shares News, Ratings, and Charts

Aurora Cannabis Inc. (ACB) enters a multi-million dollar agreement with mixed martial arts organization UFC

Agreement is to research the effect of hemp-derived CBD products on athlete recovery and wellness.

Read More Stories