Investors Brace for Another Wild Ride on U.S. Election Night

On Tuesday night, James McDonald plans to sit among 19 computer screens in his Los Angeles office, waiting for the right moment to pounce on what he hopes will be one of his most profitable trades of the year.

That moment will come when the winner of the U.S. election becomes clear, he said.

The chief executive of hedge fund Hercules Investments has set up a trading strategy geared to benefit from a momentary spike in volatility he believes will occur when investors adjust their positions in response to the election result.

Those kinds of gyrations are just the thing that Salem Abraham, president of Abraham Trading Company, is seeking to guard his portfolio against. A ranch owner and fund manager based in Canadian, Texas, Abraham plans to keep two of his firms traders on the phone as he watches the election results from home, ready to pare back on U.S. stock futures if markets appear set for a plunge.

With the market swings that followed President Donald Trumps unexpected victory in 2016 still fresh in investors minds, many have spent the last several weeks reducing their exposure across assets and hedging their portfolios against postelection volatility, while a few have developed strategies that could produce handsome profits provided they work.

This is one of the biggest events of the year, said Dennis Dick, proprietary trader at Bright Trading LLC. The uncertainty here makes the trading interesting.

On the night of Nov. 8, 2016, U.S. stock futures dropped as…

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