In a few recent articles I talked about the strength of the US stock market recovery. Many indices displayed a V-shaped pattern.
In other words, market fear is falling. With it, most of the volatility measures. The Nasdaq 100 Volatility Index, for example, is now at its lowest since Oct-2018. It peaked above 38.0 two months ago. Currently, the index is trading near 18.0 (see Featured Chart). I also talked about how to use volatility products earlier here.
Could now be the time to initiate some long volatility positions? I may be too early on this. The rally in equity markets is showing no signs of buckling (yet). But dark clouds are gathering. Corporate earnings were a mixed bag; no-deal Brexit is still possible; while macro data are not hugely inspiring. Exports from Japan to Germany are down.
Therefore, some long positions in volatility may be warranted, such as Barclays iPath Short-Term S&P500 (VXXB). Watch to buy some on declines. The thing about volatility is that it surges like a rocket. By the time you wish to establish a position – when stocks are falling – the vol market may have already trended up. Therefore, the vol hedge need to be made early.
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Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.