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These two charts show just how worried the market is about Trump

There is a strong connection between the perceived chances of Donald Trump winning the presidential election and the desire to hedge against a market drop, according to the manager of one options-focused hedge fund.

Most investors are familiar with the CBOE Volatility Index, or the VIX, which uses the prices of options on the S&P 500 to gauge both volatility expectations and investors' desire to purchase portfolio protection. What some may not realize is that the VIX cannot be bought and sold like a stock, but can only be traded through derivative products, such as options or futures (or ETFs which themselves use such derivatives).

The popularity of VIX futures can yield valuable insights about what traders as a group see happening throughout the rest of the year. For instance, at the present time, the "spot" VIX, which measures expected volatility over the next 30 sessions, is below 12, yet November VIX futures are at nearly 18.

To be sure, it is only normal for VIX futures to trade higher than the VIX (in fact, such a condition forms what is known among futures traders as a "normal" curve). But what makes this interesting is just how much November volatility expectations have moved as the state of the election has changed.

"Every single poll that comes out has really been affecting the way vol prices," Jacob Weinig, founding partner and portfolio manager at upstart hedge fund Malachite Capital, said Wednesday on CNBC's "Trading Nation."

"As Trump's polling number got a little bit of a bounce [after the RNC] you saw the November VIX come up, and since then, as his polling numbers have come down, you've seen sellers of vol re-emerging into the market," Weinig said, pointing out the recent sale of $1.7 billion worth of S&P options as an example of a particularly notable trade.

Weinig uses a chart to illustrate his point:


Indeed, one could almost determine how well Trump has been doing in the polls lately by looking at November VIX futures:


The unspoken point here is that the greater the perceived probability of a Trump win, the more volatile November threatens to be.

"A Clinton victory is going to bring calm to the markets, whereas Trump is a wild card," Weinig wrote to CNBC in an email. "Trump is not necessarily bad for markets — but you will see a pickup in uncertainty and therefore in volatility should a Trump victory start to look more possible."

With Nate Silver's FiveThirtyEight giving Trump just a 14 percent chance of winning as of Thursday afternoon, and November VIX futures slipping over the last few weeks, this should all give those who believe Trump has a decent chance of pulling out a surprise victory an idea for how to put their money where their mouths are.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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