10:13 Thursday 25 October 2018.
As we discussed in an article earlier this week, the market is currently in the midst of a negative sentiment with many of recent gains in global equity being wiped off in what has been a disastrous October for many. As some investor fear that they are staring down the barrel of a bear market, others seek to gain from the volatility of the market.
The CBOE Volatility Index, better known as the VIX, is often referred to as the Fear Index and providers traders with the ability to gain from positive and negative movements in the market. The VIX is a measure of market expectations for near term volatility based on the S&P 500 and this past week alone has seen some drastic moves which we will touch on later.
Trading the VIX is often seen as a risk management tool as it enables investors to trade volatility irrespective to stock prices and helps to protect against the downward market trends that we are currently experiencing. It also provides portfolio diversification due to the negative correlation it has to the market.
Despite being generally accepted as a gauge of sentiment by many in the market, the VIX does have high profile naysayers such as award winning author of The Black Swan, Nassim Taleb and Nobel Prize winning economist Robert Shiller.
As the S&P slumped around 4% this week, the VIX rose 28% in reaction adding 16% yesterday alone.
Its current rate of just over 24.00 is someway off the all-time high of 2008 and still below the year to date high of nearly 40.00 that was hit in February, however given the big spikes seen this week and the general mood of the market, the VIX index should definitely be considered for investors seeking diversification as they try to steady the waters of the market right now.
To learn more about the VIX and to understand how risk management can protect your portfolio, please call one of our broker on 0121 454 0770 or enter your details in the form below.
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