Search
Generic filters
Search in excerpt

An ETF for every investor.

CASH

Horizons High Interest Savings ETF

Price
$50.03
$0.00
0.00%
NAV
$50.0000
$-0.1341
-0.27%

Benchmark

Fixed Income

Fact Sheet
Learn more about CASH

QQCC

Horizons NASDAQ-100 Covered Call ETF

Price
$4.71
$-0.09
-1.88%
NAV
$4.7265
$-0.0990
-2.05%

Active

Covered Call

Fact Sheet
Learn more about QQCC

HRAA

Horizons ReSolve Adaptive Asset Allocation ETF

Price
$11.13
$0.01
0.09%
NAV
$11.1590
$-0.0250
-0.22%

Active

Corporate Class – Alternative

Fact Sheet
Learn more about HRAA
Explore All Products
Search
Generic filters
Search in excerpt
Back to Media

Searching for Signs of Stress

vol.jpg 

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

October 2, 2017

Yet again, equity markets have very quickly digested the prevailing worry. Like Pavlovian dogs, most investors have been trained to buy the “equity dip”.

It is behavior that can feed upon itself and can create a self-fulfilling loop. For instance, a month ago, people didn’t seem worried for very long about President Trump’s provocative tweets towards North Korea. In fact, markets quickly rallied thereafter. A couple of weeks later, investors remembered the previous event’s behavior and bought equities even more quickly. Then last week, the market barely down-ticked on North Korea’s promise of an atomic bomb detonation.

And so it goes, strength begets more buying and low volatility begets lower volatility. In times of extreme market stress the opposite becomes true – investors react more nervously to each subsequent headline and option pricing can spiral upwards. That is certainly not the case these days, as records for day-to-day market movement fall on a regular basis. But what hasn’t followed through is what we call “volatility-of-volatility” (or “vol-of-vol”), namely the implied volatility for options on the VIX and similar volatility-related instruments.

Investors have been aggressively pushing up the price of out-of-the-money puts in equity index options. As a result, vol-of-vol hasn’t come down to levels we would normally associate in a 10-point VIX environment. Could this be a sign of worry? Actually, it’s more than likely a sign that investors are happy to stay long, but with protection. That’s not a bad way to go with U.S. markets making new highs almost on a daily basis. But I do like to keep an eye on vol-of-vol – it can sometimes reveal signs of concerns below the surface.

chart1.PNG

The VIX at near-lows for the year. Source: Thomson One, as at September 25, 2017.

chart2.PNG

VVIX – Volatility-of-volatility has been more resilient. Source: Thomson One, as at September 25, 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.

Get Horizons insights in your inbox

Please select whether you are an…*
* Indicates required field

Related Posts

At Horizons ETFs, we believe in education as empowerment. We endeavor to equip Canadian investors with the knowledge and tools they need to navigate the investing world. From the ETF basics to more complex topics like how our suite of inverse and leveraged funds work, our comprehensive learning library aims to be accessible for all investors, from beginners to experienced traders!