Playing Volatility Via The VIX Has Little Downside Right Now


In a new report, Deutsche Bank analyst Rocky Fishman discusses the limited downside potential the firm sees in the VIX right now. According to Fishman, there are plenty of reasons to believe that the market will remain fearful and volatile in coming weeks.

We see limited downside to the VIX in the next couple of weeks, as ongoing realized vol and a growing list of worries in global markets and economies should keep vol supported, he explains.

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At the top of the list of concerns is the potential for surprise central bank actions around the world.

Deutsche Bank sees short-dated options as a good value in the current market. Fishman notes that volatility has been elevated but relatively steady. There have been consistent daily moves of greater than 1.0 percent in both directions, but no single focal moment.

Our preferred VIX tail hedge is the calendar strangle: buy a 3M call and buy a 2M put, with the intention to hold the position for several weeks. The put helps to protect the calls mark-to-market should VIX futures drop quickly, and we also like 2M VIX & VXX puts outright, Fishman adds.

The iPath S&P 500 VIX Short term Futures ETN (NYSE:VXX) has surged 20.4 percent so far in 2016.

Disclosure: the author holds no position in the stocks mentioned.

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