How the election works: Key insights for trading

The U.S. presidential election relies on the Electoral College system, where candidates compete to secure at least 270 out of 538 electoral votes to win. Each state is allocated a number of electoral votes based on its representation in Congress, which includes both the House of Representatives and Senate seats. Most states use a winner-takes-all approach, granting all their electoral votes to the candidate who wins the popular vote in that state, except for Maine and Nebraska, which allocate votes by congressional district. The election often hinges on swing states, which can vote for either major party, making them crucial for reaching the 270-vote threshold. Despite the popular vote, a candidate can win the presidency by securing the majority of electoral votes, as the Electoral College ultimately decides the outcome.

Understanding the Electoral College is important not just for following the election results but also for making informed trading choices. The results of the election, shaped by this system, can greatly affect how the market feels and, in turn, trading strategies.

On Tuesday, Bitcoin surged to $73,500, only about $300 below its all-time high in March. Spot Bitcoin ETF saw an increased net flow in the past week. Key factors driving this impressive growth include the success of spot ETFs, new monetary easing cycles in major economies, and increasing chances of a win for crypto-friendly presidential candidate Donald Trump.

Actually, both Trump and Harris have shown support for crypto. The market believes that Bitcoin will benefit no matter who wins the election. David Lawant, the head of research at crypto broker FalconX, believes the market's consensus is that Bitcoin could do well regardless of the outcome and their analysis shows that options activity surrounding the upcoming election leans clearly toward the upside. Data compiled by Deribit, the largest crypto options exchange, shows that the ratio of put options to call options is decreasing as the election day approaches, with traders buying more call options than put options.

DJT stock has been on a remarkable rally, driven by speculation about Donald Trump's potential return to the White House. As the election nears, DJT has seen its stock price surge amid heightened investor interest. However, the stock's movements are highly speculative and primarily driven by election-related sentiment rather than company fundamentals.

Long Put on $DJT: As meme stocks typically tend to drop down over long run. Investors can consider purchasing long-dated put options on DJT. Put options provide the right, but not the obligation, to sell the stock at a predetermined(strike) price, offering a hedge against potential declines. Given the speculative nature of DJT's recent surge, put options can help manage risk in case the stock's momentum reverses post-election. This strategy is particularly useful for investors who currently hold DJT shares and want to protect their holdings from a sudden downturn, and for traders who are more confident in a potential decline in DJT in long term because of its poor fundamentals.

Based on the research by BofA, market volatility is expected to rise as election day approaches, driven by the increasing uncertainty. The VIX, or the CBOE Volatility Index, is a popular measure of the stock market's expectation of volatility implied by S&P 500 index options. Often referred to as the "fear index" or "fear gauge," the VIX represents one measure of the market's expectation of volatility over the next 30 days.