Iran ceasefire odds dip as US midterm elections near

Traders are becoming less confident that the US won’t do a direct strike on Iran through October 31, even though that deadline falls just days before the US midterm elections.

The October 31 outcome in the US-Iran ceasefire market has attracted some $5.3 million in trading volume, which means that this is one of the most actively traded near-term Iran-related outcomes.

The probability fell from 79% to 74% this week before recovering to around 79% on October 23 (at 14:30 UTC)

The pullback doesn’t show an imminent escalation, but it could be suggesting that confidence in avoiding a US strike has weakened.

This is especially the case when we look at the odds after the November 3 US midterms. The November 8 outcome has 60% (that the ceasefire will continue), and by November 30, this number drops to 37%.

A simple time distance could partly explain this, but so could recent news.

What could be behind the shift?

US President Donald Trump previously said he wouldn’t strike Iran before the November elections, and this gives traders a reason to expect that the immediate risk is more limited, though not unlikely.

However, The New York Times reported on October 22, citing unidentified US officials, that the US and Israeli militaries have already drawn up plans for renewed strikes on Iran after midterms.

Moreover, Reuters reported that Iranian officials saw prolonging negotiations as a way to weaken Trump politically ahead of the midterms.

It’s unclear if the recent price movements reflect any of those developments, but it’s very likely that traders are reassessing the risks as the election approaches. This means that the next week is a narrow but significant window for the markets.