Expect Stock Volatility This Summer Amid Amped Political, FOMC Rhetoric

As Democrat Hillary Clinton and Republican Donald Trump fight to become the next American President, investors need to protect their portfolios from wild swings that can come without warning as campaign rhetoric heats up, according to a recent Bloomberg report.

Bloomberg said investor sentiment can be gauged by the "expected volatility in options tied to the S&P 500 Index that expire at different points throughout the year."

"While a broad upward slope is normal in a market where anxiety about the future gets worse with time, price jumps are now noticeable around the time of the Republican National Convention in July and the November election," the report said.

Related Link: Hewlett Packard Enterprise's CEO: A Donald Trump Presidency Won't Be Good For Business

The report highlighted the period between July 22 and 29 as being a time of expected volatility on the S&P curve. Not only do the dates coincide with the end of the four-day Republican National Convention (July 18–21), but also with July 27's Fed policy announcement.

"More and more people are buying options targeting expiries tied to specific events and trading around them," said Stephen Solaka, managing partner of Belmont Capital Group in Los Angeles, California. "They're either hedging or making directional bets, and that's why you see kinks in the curve. It's a fairly common tactic, and it's getting more popular."

Further, the report noted, "The slope of expected price swings starts higher again at the end of July and continues rising through the end of September, a period that includes the Sept. 21 FOMC decision."

Bloomberg elaborated, "For Sept. 16 to 30, S&P 500 options are embedding a price swing that's 1.5 percentage points above the historical median [...] The expected volatility is calculated using forward S&P 500 options with an exercise price of 2,075."