Free unlock edited abstracts
FT’s editor Roula Khalaf chose her favorite stories in this weekly newsletter.
Traders are developing strategies to protect their share portfolio from “volatility spikes”, highlighting how focus on U.S. President Donald Trump’s policies put investors at an edge, even though the year begins the year for stocks .
Investors have turned to derivatives markets to prevent large fluctuations in U.S. stocks, even as Wall Street volatility measures remain soft, stocks have been getting higher and higher since last year.
The possibility of low hedging, but the move by high-impact shocks (called “tail risk”) underscores the unstable shift in Trump’s trade and economic policy has disturbed investors, even as many are still betting on new The government will be a boon for American companies.
“If you are a currency manager, are you moving your entire portfolio to the back of a title? You can’t, because you don’t know if the title will last. What do you do? You use the option.” CBOE Global Market Derivatives Market Intelligence Responsible Mandy Xu said he refers to the tools that give holders buying and selling at preset prices.
Xu added: “People are nervous and reach for the fence.”
Maxwell Grinacoff, head of UBS’s U.S. stock derivatives research, said if the short-term volatility of U.S. stocks’ VIX index (often called Wall Street’s “fear gauge”) shot Higher, the “ramped” option will be obtained.
CBOE data shows that even if VIX itself is well below its long-term average, rushing to buy these options has taken the price rise to a record high.
Xu said that since the end of 2024, demand for the Blue Chip S&P 500 index will become valuable, while the Blue Chip index has increased by about 3%.
“The potential for changing liquidity conditions makes it harder for investors to wait for the sell-off to start adding protection, so even if the market is strong, the standard volatility indicator is low and the tail hedging price has been high.” Rocky Fishman, research group Asym 500’s Derivatives analyst.
Xu said most of the demand for choices was when the S&P 500 S&P 500 fell from retail investors. Institutional investors, including hedge funds, pension funds and asset managers, tend to prefer VIX calls.
However, retail investors are also flocking to more risky short-term derivatives, which will be worthless if the target price fails to be achieved quickly. On January 31, Trump threatened to impose tariffs on some of the largest U.S. trading partners, a record high of 2.4 million “zero-day” contracts linked to the S&P 500.
Nomura’s derivatives strategist Charlie McElligott said retail demand in recent weeks was a “structuring” in recent weeks, reminiscent of the crazy activity of the Meme-Stock boom in the Covid-ers era.
