Here's how trader Jon Najarian is playing the election

From the polling analysis we have, we "know" that the odds favor a Democratic win, but not a "blue wave" in the House. The same majority polling shows the Republicans holding the Senate. So knowing markets as we do, we have a pretty good view on what the money in the stock market believes will occur given these assumptions. Thus, I believe if these "knowns" come to be, then our market is where it should be and direction will be driven by events such as resumption of China negotiations and the G20 meeting later this month.

The issue and or the opportunity is that if these polls are wrong, and what we think we know is indeed not the outcome, then we're right back to a market that gets smacked in the face with a surprise. And as Brexit and the 2016 Presidential result showed, the markets will react and possibly overreact, which is what happened in each of the aforementioned events.

Scenario #1

Blue Wave – The markets would have an extremely negative reaction to a Democratic takeover of Congress. This bearish reaction would have been even larger had markets not just corrected nearly 10 percent in October.

OUTCOME: 5 percent to 10 percent correction in markets, particularly painful for financial services and energy stocks.

Scenario #2

Senate Gets Redder – Although it is a widely held belief that the Republicans hold the Senate, few are saying the Republicans might take another four Senate seats. Such a move would insure that any moves by a Democratic House against the president would only be symbolic, as to impeach they need 61 votes in the Senate. Additionally, the markets would be confident that there would not be a reimplementation of regulations, thereby giving more certainty to corporations and thus, additional capital expenditures.

OUTCOME: Significant pickup in capital spending drives infrastructure and technology stocks up to 20 percent higher.

Scenario #3

Red Wave – Kneejerk optimism is catalyst for a major rally, but increases the potential of an over extension to the upside. Such an overheated market could prompt the Federal Reserve to likewise overreact. When Alan Greenspan saw something similar in 1996, he cited it as irrational exuberance. This Federal Reserve under Jerome Powell might get carried away and throw multiple half-point interest rate hikes at us, which potentially drive us into a recession.

OUTCOME: Sharp spike in equities, but major risks of overheat mean profits must be taken quickly.

Jon Najarian is a CNBC contributor and co-founder of