Can you afford not to buy cheap hedges?

Global volatility indices continue the “great” implosion.

VIX, the official fear index, continues lower today again. The VIX trades around the 13.2 level here. SPX is not realizing much volatility at the moment, but at these levels options are becoming relatively cheap.

Since 2017, VIX has had several spikes, but interesting to note is the fact VIX has been establishing higher “VIX floor” levels. If the recent “low” VIX range is to hold, we should not see much lower VIX going forward. SPX is close to ATH levels and everything seems great, but there are several macro risks that could resurface, as well as we are about to hit the Q1 earnings season, which should produce an increased volatility itself.


Below is the JPM FX and the EM FX volatility indices. FX vol is not looking happy neither.

What about oil and gold volatility? Both in implosion mode as well.

The global implosion of volatility is hitting pretty much every asset. Below is the chart of the 1 month at the money volatility for the JPY. Multi year lows.

Arguing for this or that about to happen is of no use, but when volatility becomes this complacent the prudent investor should start looking at active hedges and replacement strategies. Volatility is a mean reverting asset, and sure the theta checks are not a pleasant thing to look at when markets move very little, but you should see long volatility here as a cheap way of expressing your views or hedging your risk cheaply on an absolute basis.

Can you afford not to buy cheap hedges is maybe the question to ask yourself?

Source, charts by Bloomberg