Post Tagged with: "volatility"
Volatility Lurks
The S&P 500 volatility index – the VIX – is a measurement of volatility expectations. It has fallen 50% since the (latest) agreement to save the euro was announced. If the VIX falls to 18, call options are worth considering
The Volatility Paradox
Volatility tends to drop when market risk is building up and leverage is rising, luring investors into complacency. Indeed, the lower volatility justifies investors taking on more leverage; if volatility has dropped by a third, why not take one and a half times the leverage? This pro-cyclical dynamic arising from lower volatility in times of increasing risk-taking is the volatility paradox. The main take-away from the volatility paradox is that we shouldn’t use shorter-term, contemporary risk measures when they are very low
Cash is king: Buy volatility and buy liquidity
We are in a mid-cycle slowdown not dissimilar to the ones we experienced in 1995 or 2005. I am remarkably sanguine about the ability of policy makers to induce a cyclical recovery via fiscal and monetary stimulus. And, of course things don’t move in a straight line – not on the way up and not on the way down. See my comments from “Back to the global imbalances norm”. The difference is policy and the macro backdrop of accumulated debt and deleveraging. This is negative for equities. And that means curtailing risk, raising cash and buying volatility