The Overnight Kink: How Option Markets Price an Election Before It Happens

[Shadow Trader]

Scheduled political events leave a visible footprint in currency options well before any vote is counted. The volatility curve usually shows a bump in the expiry that spans the event date, while expiries just before and just after sit lower. That bump is the market's price for jump risk concentrated in a single night.

One way to read it is to compare the implied volatility of the event-spanning expiry with its neighbours. The excess is the premium attached to the event itself, and a wider excess suggests participants expect a larger discontinuity. Overnight and one-week tenors tend to show it first, since a long-dated option dilutes a one-day jump across many quiet sessions.

For a scalper, the practical meaning is that the market has already assigned a price to uncertainty. Spreads on the affected pair often widen into the result, and depth thins as liquidity providers cut risk limits. Premium also tends to deflate once the outcome is known, even when spot moves sharply, because the uncertainty has been resolved.

Checking the term structure in the days before a vote gives a rough sense of how much participants fear a gap. It is context, not a forecast of direction.