Bullish Case: The current implied volatility suggests potential for price recovery as investors anticipate decreased volatility. Historical returns indicate positive trends over multiple holding periods, supporting a bullish outlook if economic indicators improve post-election.

Bearish Case: High put activity indicates significant bearish sentiment, with heightened implied volatility reflecting market uncertainty. If economic performance disappoints or geopolitical tensions escalate, EWU could face downward pressure, reversing recent momentum.

Potential Outcomes:

1. (50%) Moderate price increase driven by improving economic indicators post-election.

2. (30%) Continued sideways movement due to mixed signals and uncertainty.

3. (20%) Sharp decline due to negative market sentiment and geopolitical risks disrupting growth.

Trading Oracle: Consider a bullish debit spread on EWU by going long the January 2025 EWU 35 calls and shorting the 36 calls. This strategy leverages favorable implied volatility trends while balancing risk within the current market environment. Alternatively, short-term puts can hedge downside while awaiting potential price rebounds.

November 24, 2024