Implied Volatility as an Event Budget: Comparing Option Pricing with Scenarios Before Israel's Election

Key takeaways

1. Final legal polls showed 52 seats for Eisenkot's camp and 50 for Netanyahu's bloc; with about 71% of votes counted, Israeli media projected 54 for Netanyahu's bloc and 47 for Eisenkot's (Anadolu Agency; Reuters).

2. JPMorgan's August scenarios ranged from a 3% shekel fall to a 3% gain, options then priced about a 1% move, and the shekel weakened around 2% to 3.1185 per dollar after the vote (Reuters).

3. Size event positions from the largest plausible scenario move, compare it with the implied move before the event, and record the actual move afterwards.

The development

Israel held a general election for its 120-seat Knesset on Tuesday 27 October, a public holiday in Israel (ITC Research). The final polls permitted by law, published by KAN and Channel 12 the Friday before, both projected 52 seats for the opposition camp led by Gadi Eisenkot and 50 for Prime Minister Benjamin Netanyahu's bloc, leaving neither with the 61 seats needed to govern (Anadolu Agency). The result was a deadlock of a different shape. With some 71% of votes tallied, Israeli media projected 54 seats for Netanyahu's bloc and 47 for Eisenkot's, with definitive results expected on Thursday (Reuters).

In August, a JPMorgan report described by Reuters estimated that the shekel could strengthen 2% to 3% on an opposition victory, weaken about 3% on another Netanyahu win, and stay broadly steady if coalition talks dragged on. The bank also said implied volatility priced only about a 1% move around the election, which it said "seems low" (Reuters, 27 August).

The realised move was larger than that budget. The shekel rallied on election day, briefly taking the dollar below 3.02 (Globes), then weakened around 2% to 3.1185 per dollar on Wednesday, on track for its worst day in 16 months (Reuters). The Bank of Israel's representative rate rose to 3.128 from 3.078 before the vote, a 1.6% change (Bank of Israel).

Market transmission

Implied volatility is the volatility rate built into option prices. Converted to a daily figure, it shows roughly how large a move the market is paying to protect against. When a known event falls inside an option's life, the extra premium for that day is the market's event budget. If your scenario analysis says the realistic range is far wider than that budget, the event may be underpriced, and the actual move may be larger than your position size assumes. Here a two-day round trip of about 2% each way exceeded the roughly 1% implied move JPMorgan cited.

What to monitor next

• The double-envelope count and the definitive results expected on Thursday (Reuters).

• Coalition talks; Capital Economics told Reuters that any government that emerged would "probably be fragile".

• Bank of Israel commentary; its next rate decision is on 23 November (Bank of Israel).

• Oil and regional headlines, which affect the shekel through risk sentiment.

Reusable lesson

Use five steps before any scheduled binary event.

1. Write down two to four scenarios and a plausible move for each, noting where each estimate comes from.

2. Find the implied move, from one-week options that include the event or from a published estimate of it.

3. Compare the two. If the scenarios are much wider than the implied move, assume the market may be underpricing the tail.

4. Set position size from the largest plausible scenario move, not from the average daily range of the past month.

5. After the event, record the actual move against both numbers. For this election: scenarios of up to 3%, an implied move of about 1%, and an actual fall of around 2% on the first trading day after the vote.

The difference with elections is that results can arrive outside normal trading hours and coalitions can take weeks to form, so the event may not resolve in a single session.

Invalidation and risk

The implied-volatility figure dates from August and may not reflect pricing on the eve of the vote, so the comparison is approximate. The count was still incomplete, and a contested or slow coalition process can stretch the event across several sessions. Treat the published scenarios as one bank's view, not as a forecast.

Glossary

Implied volatility: The expected size of future price moves derived from option prices, usually quoted as an annualised percentage.

Implied move: The approximate price change around an event that option pricing is paying for.

Tail risk: The risk of an outcome far from the expected range that occurs rarely but causes large losses.

Sources

Reuters (via Yahoo Finance) (2026-08-27): Israel election could swing shekel by up to 3%, JPMorgan estimates

Reuters (via The Globe and Mail) (2026-10-28): Israeli stocks fall, currency weakens as Netanyahu bloc projected to win more seats than expected

Bank of Israel (2026-10-28): Representative exchange rate, US dollar (3.078 on 26 Oct; 3.128 on 28 Oct). https://www.boi.org.il/en/economic-roles/financial-markets/exchange-rates/

Bank of Israel (2026-10-21): The Monetary Committee decides on October 21, 2026 to keep the interest rate unchanged at 3.25 percent

Anadolu Agency (2026-10-24): Netanyahu bloc trailing opposition with projected 50 seats to 52 in final Israeli election polls

Globes (2026-10-27): Following the exit polls: the shekel narrows its gain against the dollar (Hebrew; title translated)

ITC Research (2026-10-23): ITC G10 Weekly Macro & Supply Calendar: Monday 26 - Friday 30 Oct, 2026

Disclaimer

This note is provided by the SummitFx Project for general education and market context only. It is not investment advice, not a solicitation to buy or sell any instrument, and not a personal recommendation. Foreign exchange and related markets are leveraged and can result in the loss of some or all of your capital. Figures are believed accurate at the time of research and may already be stale. Always verify live prices, official releases, and your own risk limits before acting. Past market behaviour does not determine future results.