BY: HANS ALBRECHT, CIM®, FCSI, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS
January 10, 2018
If you don’t believe that things are in feel-good mode around the investment world, check out the run of consecutive positive months for the MSCI World Index. As the chart below illustrates, that index had 13 consecutive positive months up to the end of November, 2017. That kind of action tends to dampen option pricing and reduce actual measures of market volatility to almost nothing. Remember, volatility is discernable from a ‘pivot’ of movement, meaning up and down.
‘Up’ day-after-day is a little misleading because it doesn’t measure significant movement even though we all know that movement has occurred to the upside. So has 2017 really been devoid of volatility? Perhaps per se, but we can clearly see from world index performance data that it has been a year full of sharp movement – albeit just upside movement. That’s part of the reason why a number of inverse short-term VIX futures products have performed exceptionally well. They capture short volatility in a pure fashion, meaning without strike risk.
Things have worked out about as well as possible for these products, but I believe it’s time to consider trimming positions – there may not be much meat left on the bone here. A more elevated and normalized volatility environment, and potential sharp volatility short-squeezes could be on the docket for 2018.
Consecutive, record-breaking months of positive returns in the MSCI World Index
Source: SG Cross Asset Research, 1970 to November, 2017.
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