Stock Investors Are Finally Starting to Buy Hedges Againby
CBOE put-call ratio spikes to highest since before election
VIX skew near lowest in 10 months, signaling gauge to climb
With the U.S. equity market waking from its slumber, investors are finally taking the hint to hedge their post-election gains.
The CBOE Volatility Index is coming off its biggest one-day rise since Nov. 3 and a separate measure of bearish bets relative to bullish ones has surged to the highest since President Donald Trump’s victory, according to Bloomberg data. It’s a departure from the tranquility in U.S. equities during the weeks following the election, a period in which the VIX fell to a 2 1/2-year low.
Here are some recent volatility recommendations from Wall Street strategists:
- Sell VIX puts, buy call spreads to capitalize on potential floor in VIX: Macro Risk Advisors (Jan. 30)
- Buy VIX call spreads to position for a pick-up in volatility: Credit Suisse (Jan. 30)
- Use collars, buy calls on volatility: MKM (Jan. 25)
- VIX will remain lower in early part of 2017, then average 20-22 throughout rest of year: Weeden (Jan. 22)
Volatility traders are finally making money in the era of Trump, whose policies on immigration and trade are arguably contributing to a decline that is now the biggest for any back-to-back days since the election.
While Monday’s intraday decline of as much as 1.2 percent jarred investors, sentiment on the VIX was already showing signs of a reversal. On Friday, options traders were paying the lowest premium in 10 months to protect against a further decline in the VIX, down from a five-month high at the start of 2017. The so-called fear gauge is now on pace for its biggest two-day climb since September.