Election Day is next week, and the headlines are getting louder. Control of Congress. The direction of tax, spending and trade policy. What a divided government might or might not get done.
Markets have to price every one of those possibilities at once. That’s uncomfortable. It’s also familiar.
Midterm years have tended to bring rising volatility into the vote, and calmer markets once the outcome is known. For investors who use option-income strategies such as covered calls, that pattern is worth understanding rather than fearing.
Elections Move Volatility
The most common gauge of expected market volatility is the Cboe Volatility Index, or VIX. Its level is calculated from the prices of S&P 500 index options, so it reflects how much movement the market expects over the coming month.
In midterm years, the VIX has followed a recognizable arc. Plante Moran averaged the index across the nine midterm years since 1990. On average, volatility climbed through late summer, peaked in October, dropped sharply around Election Day and kept easing through year-end.
The logic is straightforward. Before a vote, markets must account for a wide range of policy outcomes. Once results are in, that range narrows. Markets don’t need a particular winner. They need clarity.
Two cautions belong next to any historical pattern:
- It’s an average, not a forecast. Individual years have looked very different, and the pattern isn’t a roadmap for 2026.
- Elections are rarely the only story. Inflation, interest rates and earnings can drive volatility as much as, or more than, the calendar. This year’s backdrop of sticky inflation and a Federal Reserve leaning toward higher rates is a good example.
Volatility Is the Fuel for Option Income
An option is a contract. The buyer pays a premium for a right. The seller collects that premium up front in exchange for taking on an obligation.
When markets expect bigger swings, options tend to cost more. Buyers pay more for protection or for exposure to a potential move. All else equal, that means sellers of options may collect more premium.
That’s why covered call and other option-income strategies pay close attention to volatility. The same uncertainty that makes election season feel unsettled is an input into the income those strategies seek to generate. The VIX makes the point: the market’s so-called fear gauge is volatility read straight out of option prices.
The trade-offs travel with it:
- Higher premiums reflect higher risk. Markets that are expected to swing more can swing in either direction, and premium collected may not offset a sharp decline. Premium received is not the same as profit or total return. Investment losses and costs may exceed premiums collected. Covered call strategies retain substantial downside exposure while limiting participation in gains above the option’s strike price.
- Upside can be limited. While a call option is in place, it can limit how much of a market’s rise a position participates in.
- Premiums can shrink. If history holds and volatility eases after the vote, option prices typically ease with it. Income is never guaranteed.
Stay Invested With a Plan
It’s tempting to try and time the markets by stepping aside until the votes are counted. But trading around an election asks for more than one good decision. You’d need to choose when to get out of the market, predict the outcome, predict how markets will react to it, and then decide when to get back in.
History hasn’t rewarded waiting on the sidelines for clarity. BNY Investments looked at the S&P 500 in the 12 months after each midterm election since 1950 and found positive price returns, averaging 16.6%. That’s history, not a promise, and an index can’t be invested in directly. But it shows how often the period after the uncertainty has mattered more than the uncertainty itself.
Staying invested doesn’t mean ignoring changing conditions. A clear plan can put volatility in context: how a portfolio may behave, where its income comes from and when adjustments may make sense. That perspective can help keep short-term headlines from overshadowing longer-term goals.
That’s the discipline behind a simple idea:
Stay invested according to your objectives, evaluate opportunities to generate income, and consider the tax consequences of investment decisions.
Through the Noise
Election-related uncertainty may diminish after results become known, but volatility can remain elevated or increase for other reasons.
That’s the thinking behind Growth + Income Investing: staying invested for long-term growth while seeking income along the way. The potential to help meet near-term needs can make it easier to stay committed to a long-term plan, even when markets are unsettled.
The question isn’t who wins in November. It’s whether your plan is ready for the weeks ahead of it and the years after it.
Want to go deeper on how options work? Explore the Know How library at tappalpha.com.
Growth + Income, one market at a time.
Disclosure
This article is for informational and educational purposes only and is not investment advice or a recommendation to buy or sell any security. Views reflect TappAlpha’s perspective at the time of publication and are subject to change. Historical patterns are not a guarantee of future market behavior. Past performance is not indicative of future results. All investments carry risk, including loss of principal. Options strategies involve significant risks, including potential loss of principal, and are not suitable for all investors. Income generation is not guaranteed and may vary significantly based on market conditions. Tax consequences depend on individual circumstances; consult a financial or tax advisor before making investment decisions. The S&P 500 Index and the Cboe Volatility Index (VIX) are unmanaged and cannot be invested in directly. Third-party data is believed reliable but has not been independently verified. Supporting documentation for claims, comparisons, statistics and other technical data is available upon request.
Tapp Finance, Inc. d/b/a TappAlpha
Sources
- Midterm elections: Volatility before clarity, Plante Moran, Oct. 1, 2026: average VIX path across nine midterm years since 1990.
- How do midterm elections impact markets over time?, BNY Investments, May 2026 (data as of May 4, 2026): S&P 500 12-month price returns after midterms since 1950, 16.6% average.
- Voice and structure modeled on A Steady Course in Unsteady Markets and Daily Income with 0DTE Covered Calls, tappalpha.com.