Options trading on Brazil's largest stock ETF hit a record high as investors brace for a volatile election. The Brazilian real's one-week implied volatility surged above 31%, the highest since late 2022, as the race tightens between market favorite Flávio Bolsonaro and leftist Luiz Inácio Lula da Silva. Neither candidate is expected to win outright in the first round, but the result will shape the runoff.
"We do anticipate seeing opposite initial market reactions depending on the outcome," said Petar Atanasov, co-head of sovereign research at Gramercy Funds Management. Open interest in EWZ options is at an all-time high of over 9 million contracts, driven mostly by calls. Demand for calls on the Ibovespa has also jumped since late August, with hedge funds like Ibiuna Investimentos and Verde Asset Management positioning for a potential rally.
Banks from Citigroup to JPMorgan Chase & Co. recommend options bets on a stronger real. Prediction markets now give Bolsonaro roughly 60% odds of winning, up from Lula as the favorite in early September. A Lula lead narrower than two percentage points in the first round would be positive for Bolsonaro, Citigroup strategists said.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing