What a few days difference can make. On Tuesday we wrote:
It does not matter what global asset you pick, volatilities are down. You can argue that the market is cheap or expensive, that it will retrace or break new highs etc, but our point is, at current levels of implied volatilities, the market is pricing practically no possibilities of any “extra stress” to the system. Assuming “nothing” will happen can prove to be very expensive. Hedging positions is by definition a “cost”, but at these levels of global volatilities, it sure is a relatively cheap hedge.
We have been outlining our logic for the prudent investor to get into hedges and use cheap volatility wisely. While European volatility has been on a slow rise earlier this week, US volatility was “stubbornly” stuck at rather depressed levels. It all changed today as calm turned into fear.
Below are a few charts showing the imminent fear among investors.
VIX is going parabolic today!
V2X started moving “slowly” higher several days ago and extends the move higher today.
Pretty much all cross asset volatilities spiked higher today. Oil volatility moved higher.
If you are not satisfied with “normal” volatility, you can always try trading Turkish Lira volatility. The 1-month ATM vol of the TRY exploded today!
Source, charts by Bloomberg