[Editor’s note: The following is an excerpt from a recent, longer piece by Kevin Muir, formerly head of equity derivatives at RBC Dominion and better known for his exploits as “The Macro Tourist.” His daily letter is now subscriber-only. The following is reprinted here with permission and is available exclusively to his subscribers and mine. Those interested in trading ideas from Kevin related to the piece below can check out the new MacroTourist here.]
Well, it’s finally here -- Election Day in the United States.
I am going to break my rule, and write about politics (a little bit), but before I do, I want to emphasize that it will be solely from the perspective about what it means for the market. I have no desire to convince anyone of what should be done. I am only interested in what will be done.
However, it’s not quite that easy. Trading is not only about forecasting the correct fork in the road, but calculating the odds of that path being taken, while also evaluating the payoff profile if you choose correctly.
Let’s say the market has priced in a 1 out of 5 chance of an event occurring. However, you think the odds are actually 2 out of 5. Not only that, if
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