Election Check-In: How The EWW Implied Volatility Has Tracked Poll Numbers


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Two weeks ago, we posted a blog entry about how the iShares MSCI Mexico ETF [$EWW] can be used as a proxy for Donald Trump's position in the U.S. Presidential campaign polls. 

The EWW tracks a basket of Mexican equities.  It has been notably impacted by presidential polls because investors expect that Trump's positions on trade and immigration could lead to a change in policy toward Mexico. Meanwhile, market participants generally expect Hillary Clinton to keep the status quo of the current administration, leading to little change in the relationship between the U.S. and its southern neighbor.

The second presidential debate is now over.  The election is set for November 8, which puts it less than a month away.  We thought this would be an appropriate time to check back in on the EWW to see how it has reacted as the U.S. Presidential race moves into its final stages.

Implied Volatility for the EWW rose steadily from late September into early October, reaching a close of 30.3 on October 7.  This was the highest finish February.  However, there was a notable dip on Monday, taking it to 27.3 as of this writing.

This dip followed the release over the weekend of a decade-old video capturing Donald Trump making controversial remarks about women.  It also followed the second presidential debate, which took place on Sunday night.

The price for the EWW has been advancing from late September.  It has climbed from $46.65 at the close of trading on September 20 to $50.74 as of this writing (October 11).  It is still well off of a multi-month closing high of $53.80 set on August 15.

The polls narrowed in late September, amid concerns about Hillary Clinton's health and the release of audio of her "basket of deplorables" comment.  According to Nate Silver's FiveThirtyEight election model, the odds that Trump would win the election reached 45.2% on September 26 - close to a toss up.  This was the closest the polls had been since just after the Republican convention in late July, when the polls showed the race basically even.

Trump's chances of winning, according to FiveThirtyEight, have been falling in the past couple weeks.  As of this writing, they stand at 17.5%.

The ATM Straddle Premium for the EWW's November 4 expiration (just ahead of the November 8 election) is $2.66, or 5.2%.  Currently, the November 11 expiration carries an ATM Straddle Premium of 7.5%, or $3.79. 

For more information, visit EWW's Option Summary page on MarketChameleon.com