[ad_1]
Investors Alley Lead Options Analyst Jay Soloff shares how he is evaluating the current levels volatility is trading at and the factors driving market volatility today. Soloff also talks about his volatility expectations for the rest of the year and when he thinks we could see a softening of volatility.
What are some of the market trends you are seeing in the Nasdaq-100 volatility index (VOLQ)?
While realized volatility is backward-looking, implied volatility indexes like VOLQ are forward-looking (what volatility is expected to be). VOLQ and related indexes are maintaining historically high levels primarily due to the expectation the Fed will be very aggressive in its upcoming rate hikes and the likelihood of a recession as a result.
How are you evaluating the current levels volatility is trading at?
High implied volatility levels are in line with what the market has been doing (a rough average of 2% daily moves). The elevated levels of volatility are also a reflection of potential tail risk should we experience more uncertainty in the economy like inflation continuing to rise despite Fed action and surprise geopolitical events.
What are some factors driving volatility in markets today?
Market volatility (historical/realized volatility) is generally a reflection of where the market has been. A high realized volatility is often due to the aftermath of some unexpected events (like several days of big market moves after a higher-than-expected CPI print).
In the current environment, the concerns over inflation and higher rates are keeping the market on its toes.
What should investors understand about volatility in the markets?
Volatile markets don’t have to behave like previous volatile periods. What may have worked during previous down markets may not apply this time around.
How can investors and traders take advantage of the high levels of volatility?
Given proper risk management, trading at high volatility levels can be lucrative. Hedged short volatility trading is one way to go. For example, being a net seller of options but with protection against a large equity selloff.
What are the volatility expectations for the rest of the year?
Investors are likely to be laser-focused on Fed actions and inflation data. There’s also the mid-term election to consider. However, barring stubbornly high inflation, we could see a softening of volatility as the holiday season approaches.
This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
[ad_2]
Image and article originally from www.nasdaq.com. Read the original article here.