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Markets Set Up for Volatility, No Matter Who Wins

Fear of stalemate: Markets setting up for Wednesday volatility, no matter who wins.

Weekly S&P 500 options, which expire this Friday, are pricing in a 1.4 percent move each day until they expire, which implies a roughly 20 point move in the S&P 500 index. Every day for the rest of the week.

Why? The consensus theory is that President Barack Obama is bad for stocks, at least short-term, and Republican presidential candidate Mitt Romney is good. With the S&P 500 at 1,417, there are some buying puts in the 1,350 to 1,400 range (bearish), which seems to be a bet that Obama wins. Some are buying 1,450 to 1,475 calls (bullish), which seem to be a bet that Romney would win.

That, at least, is the interpretation. But it's not clear this is projecting any winner or loser. My bet is that what is really motivating this is the concern that the election may be a stalemate, and that a clear winner will not be declared for weeks. That scenario caused the markets to drop nearly 10 percent in the 2000 presidential race before a victor was declared in mid-December.

Yesterday, the stock market was not projecting any clear winner. Arguments that recent weakness in banks and dividend payers (utilities, telecom, real estate investment trusts) project a win for Obama are easily offset by strength in the dollar and the stock market up slightly in the past two weeks — both of which argue for a Romney win.

Regardless: The end of the election and a quick move to address the "fiscal cliff" could be a positive catalyst for stocks, no matter who wins.

Elsewhere:

1) No bottom in Europe, yet. Purchasing manager indexes (PMIs) for October showed European economies continue to shrink. (Read More: EU Sets Dire Spanish Growth Forecasts: Report)

2) Greece back in the spotlight. Not a focus here, but it is in Europe. The Greeks are voting on a privatization law that is part of the economic reforms the so-called troika (European Union/International Monetary Fund/European Central Bank) is requiring. The troika will issue a report shortly, and the euro-area finance ministers should vote on disbursing the next tranche of aid (roughly 31 billion euros, or about $40 billion) soon, perhaps on Nov. 12, when the next meeting of finance ministers is scheduled.

But the odds are still that a deal will fall apart long-term. The Greeks want two more years to hit the austerity targets that were agreed upon; many euro-area countries don't want to give it to them, even if they approve the austerity plan. They want to essentially create an EU commissioner that will oversee the Greek budget process.

Under this scenario, the Greek government will essentially take orders from Brussels. This is unlikely to fly on the streets in Greece. (Read More: Greeks Strike Over Spending Cuts Before Crucial Vote)

Euro zone officials are convinced the Greeks can't keep a deal, and that they will need a third bailout. We are finally reaching the pushback stage, the point where even kick the can — an effective strategy until now — is reaching its limits. The Greek debt is not sustainable.

3) NYSE Euronext earnings ... beat on bottom line, light on top line. Cash trading and listing net revenue was down 20 percent year-over-year. The only reason it wasn't down more was that listing revenue was stable. U.S. cash trading was down 38 percent. The NYSE continues to invest in clearing, and in Corpedia, which delivers services to corporate management.

—By CNBC's Bob Pisani

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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