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All Quiet on Every Front

All Quiet on Every Front 

BY: HANS ALBRECHT, CIM®, FCSI®, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS

Anyone who regularly reads my blog knows that I’m a big believer in listening to what the market is telling us. Lately however, it has been saying very little.

Success in premium harvesting this year has come from markets that are just not doing much of anything – option premiums are lower, but we are mostly retaining them. Would I rather be getting higher premiums? Of course, but I’m perfectly happy with taking in lower amounts as markets meander along.

The average VIX level for September was 10.44, the second-lowest on record. The BetaPro S&P 500 VIX Short-Term Futures™ Daily Inverse ETF (“HVI”) had its second-best month of the year thanks to low day-to-day market movement. Are things too quiet? For years, I’ve been saying that low volatility is NOT an indicator to sell your stocks. In fact, many people misuse the VIX for that purpose.

If the VIX is telling you things are calm, you should just accept it. Calling a bottom in the VIX is like calling a top in the market – no one gets that right, and when they get close, it’s often after being wrong dozens of times. But if you look at the chart below, we can see that aggregate option pricing across 14 asset classes (including equities) is nearing the low levels of 2007 and 2014. Confidence is very high indeed, perhaps too high.

We’ll be keeping an eye on this chart as the year comes to a close.

chart.jpg

Source: SG Cross Asset Research/Cross Asset Quant, Bloomberg, as at September 28, 2017

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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