Dubai PR Network, Online Press Release from Dubai and Middle East
Business, Banking and Investments(Banking & Investments)
Filter PR by
Global Equity Volatility Insights: Comfortably Numb
•  Complacency & low conviction led to the 25th largest 1 day S&P fragility shock since 1928 last week; bubbles lead fragility
•  If buy-the-dip prevails, it's simply reloading the spring, as this is the new normal. Fortunately the W-trade hedged on cue
•  Where to find the most complacent vol markets even after the shock
Moral hazard squared
The challenge with a market propped up on the promise of policy and divorced from fundamentals is it leaves investors with low conviction. Many get forced into chasing the trend against their better judgement and slowly succumb to reflexivity (believing the market is correctly forecasting a rapid recovery). As a result, markets can become comfortably numb, exhibiting much lower volatility than either the fickle sentiment or the still uncertain fundamentals warrant and this leaves them highly susceptible to flash-crashes and tantrums. As we have noted, low vol bubbles directly lead to high fragility.
This has been the story of the post-GFC era as central banks have taken control, driving a four-fold increase in fragility events in the last 10 years vs. the prior 100. Covid has only accentuated this trend. Despite the largest economic shock since the great depression and near record earnings uncertainty, the S&P has recorded its fastest rebound since the depression, and volatility is falling near its fastest pace in its 92yr history. Last Thursday's S&P drop (-5.9%) was the 25th largest shock relative to its trailing vol in the 23,224 trading days since 1929 (0.01%-tile), in part fuelled by trigger-happy investors chasing the market with call options that automatically de-lever as the market declines. Remarkably, this historic air-gap occurred from a higher vol level than most, with only the Oct-87 and Oct-97 crashes starting from higher risk levels.
This should serve as a reminder that markets are riskier than they appear. To many, it will seem like a great buy-the-dip opportunity, but the risk is that it's only re-loading the spring for the next fragility event and the potential for a more major trend reversal. Fortunately fragility can be hedged. The W trade we introduced in our 2020 year ahead is but one example of a low carry, highly convex hedge that continues to protect effectively against these risks.
Highlights from the rest of the globe
1. The 'W trade' (short SPX 3m 1x3 put ratios + 1x2 call ratios, delta-hedged) fared well in last week's outsized fragility shock amplified by option technicals
2. Screening for value in hedges for the risk of a second wave
3. Cheapest tail hedges in Rates and FX; In equities, HSCEI puts screen cheapest despite concerns of another wave of Chinese COVID-19 infections
4. ESTX50 long-dated vols muted at current market levels, prefer short put ratios 
5. Value vs momentum reversal last week was more a correlated risk asset selloff than a factor rotation as in Sep-19
6. Best value equity hedges currently in Asia. HSCEI Sep-20 8,000/9,000/10,500 put spread collars for $85 offer a max payout ratio of 12-to-1
7. Asia autocall issuance down 80-90% from Feb highs and will unlikely resume in earnest unless the rally resumes - Expect limited vol supply in the back-end for now

Posted by : Dubai PR Network Editorial Team
Viewed 4258 times
PR Category : Banking & Investments
Posted on : Tuesday, June 16, 2020  3:21:00 PM UAE local time (GMT+4)
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of
Previous Story : Tetra Pak Arabia Commits to Net Zero Emissions
Next Story : 5G Estimated to Reach 80 Million Subscriptions in MENA by 20...
Email this article Print this article

Share this article with your friends and followers
Back to Section Home

Related Stories

Most Viewed Press Release posted in the last 7 days
Make Up for Ever Introduces for the First Time Its New Active Care-in-foundation to Revive... [6326-Views]
HONOR 2020 H1 Business Achievements in International Markets [4022-Views]
Here's Why A Silicone Cleansing Brush Champions Other Cleansing Tools and Techniques [3682-Views]
Get Your No-MakeUp MakeUp Look With Hourglass [3563-Views]
Samsung Launches Galaxy Watch3 and Galaxy Buds Live [3325-Views]
Panasonic Jaguar Racing Head to Berlin for a Lockdown Showdown [3264-Views]
Save up to AED 25,000 on Pre-Owned Lexus Cars with Al-Futtaim Auto Fest [3120-Views]
Safe Start-up of Unit 1 of Barakah Nuclear Energy Plant Successfully Achieved [3026-Views]
Parmigiani Fleurier Tonda 1950 Tourbillon [2993-Views]
Sony Middle East & Africa Announces ‘Ready for PlayStation®5' for current BRAVIA™ TVs [2595-Views]
Introducing the New Omega Constellation Gents' Collection' [2403-Views]
Lacoste Launches the Roland - Garros Eyewear Collection [2390-Views]
UAE Team Emirates Back to Winning Ways [2345-Views]
Pre-Orders for Samsung's Galaxy Note20 and Galaxy Note20 Ultra Now Open in the UAE [2288-Views]
Up to €500,000 to Support the Most Promising Innovators: The Agrofood BIC Accelerator Issu... [2202-Views]
Jafza Sets a New Benchmark With ‘collaboration for Safe and Sustainable Growth' Webinar' [2173-Views]
The Last Few Weeks of Dubai Shopping Mall Group's Summer Promotion [2050-Views]
The Best Just Got Better – Sony Middle East & Africa Announces WH-1000XM4 Industry-Leading... [2034-Views]
Kia Motors Collects Over 2,000 Pairs of Football Boots via UEFA Europa League Trophy Tour ... [2021-Views]
Cebu Pacific Advisory: Suspension of Domestic Passenger Flights to/from Manila – Aug 4 to ... [2005-Views]
Dubai Sports Council and Ski Dubai to Host One of the World's First Snow Sports Competitio... [1972-Views]
Malabar Gold & Diamonds Opens 2 New Showrooms as Part of Its Global Expansion Plan [1870-Views]
New Month, New Goals [1857-Views]
Face Shields Now Required for Cebu Pacific Passengers [1820-Views]
Post-COVID Travel is Set to Become Smarter. Here's How. [1812-Views]
RSS Facebook Twitter LinkedDin
Top Sections
Top Stories