In my most recent video I discuss the spike in the VIX volatility index that has raised concerns about the potential implications for major equity indexes like the S&P 500 and the Nasdaq.
By analyzing historical examples of extreme VIX levels and comparing them to the current market environment, we can gain valuable insights into what the future may hold for stocks.
However, it’s important to consider how changes in the options market, such as the growth of zero-DTE options, may be affecting the behavior of the VIX and other option-related indicators.
To gain a more comprehensive understanding of the current market conditions, I also examine the relationship between the VIX and other indicators of market fear and uncertainty, such as high yield bond spreads and the performance of defensive sectors.
Looking at the widening of credit spreads and the relative strength of utilities, consumer staples, and real estate, we can corroborate the signals of elevated risk and the potential for further deterioration in risk assets.
- Does the historical context of extreme VIX readings support the notion that the current spike could lead to a significant market drawdown?
- How can investors use the relationship between the VIX, high yield bond spreads, and defensive sector performance to navigate the current market environment?
- What steps can market participants take to prepare for the possibility of increased volatility and downside risk in the coming months?
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Video: How To Measure Market Risk
Twitter: @DKellerCMT
The author may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
