Bank of America: Global Equity Volatility Insights – Midterms Amplify Dispersion More Than Vol

BofA derivatives strategists argue that the upcoming US midterm elections are more likely to drive rotation and dispersion than broad market volatility, advising low-cost hedges like SPX PDOs and IWM puts. Meanwhile, they recommend rotating European dividend exposure from SX7E to SX5E and switching from long gamma to asymmetric call spread collars in deeply discounted Korean equities.

Key Takeaways

• 1.US midterm elections are more likely to generate sector rotation and dispersion rather than broad index volatility; investors should avoid overpaying for index hedges and favor low-cost grind-lower structures like SPX PDOs or VIX call spread collars.
• 2.Rotate long dividend futures from SX7E into SX5E or European bank equities, as SX7E dividend futures are priced for perfection whereas SX5E offers better valuation and indirect AI exposure via ASML capping.
• 3.The Korean equity market has exited bubble-risk territory as BofA's Bubble Risk Indicator plunged to 0.52 and volatility halved, offering an attractive opportunity to switch from long gamma to low-cost upside structures (call spread collars) on KOSPI 200 trading at 6.2x forward P/E.

Table of Contents

• BofA GFSI™ X-Asset Risk Landscape
• BofA Bubble Risk Indicator Landscape
• US midterms more likely to amplify dispersion than vol
• Hedging at the index level
• Hedging underpriced Nov-2024 movers
• Replace SX7E divs with SX5E divs or EZ Bank equities, as upside is well priced
• Korea: from long gamma to long upside in a deeply discounted market
• Frequently asked questions about the BofA Bubble Risk Indicator (BRI)
• Summary of Open Trades (01-Sep-26)
• Summary of Closed Trades (01-Sep-26)

Report data

SPX midterm election day moves vs trailing 1m avg (abs) 1d move — as of September 1, 2026.

Reports in this series

Global Equity Volatility Insights is shown in chronological order through this edition, published on September 2, 2026.

Part of the Global Equity Volatility Insights series — view all 3 editions

1. Jul 14BofA Volatility Insights - Stock vs index vol at 90s Dotcom extremes
2. Jul 21BofA Global Equity Volatility Insights - BRI again flags risks that valuations miss

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