Watch Your P/L Carefully as VIX Explodes

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Markets change, but the stupidity of people remains the same. Over past weeks we have heard that we should “enjoy the ride” and be prepared for “the melt up” by various “prominent” investors.

The problem with these types of “panic buy calls”, after markets have surged, is that eventually they get caught very wrong. After all, these investment pros are just humans.

Overnight, Trump´s latest tweets have sent markets collapsing, especially China, and risk premium shooting higher.

When vols spike as much as they are doing in early trading today, the prudent investor must take an objective look at how much p/l pain you can take. When vols explode, the big portfolios need to “shave off” risk, resulting in a huge reshuffling of global risk.

VIX is up more than 40% in pre-market right now. This is a huge move and will make risk managers stay on the alert going forward, instructing the PMs and traders to cut down on risk, feeding the “reshuffling of risk” moves.

The European volatility index, the V2X, is spiking massively as well, up 27% on the day.

If these vols are at sustainable levels or not, nobody knows, but in times of exploding vols, you simply have to take care of any possible p/l erosion with a methodological approach.

We strongly suggest a read on the single most important factor in trading, taking care of you p/l.

Full read HERE.

Source, charts by Bloomberg