Guest Post: Derivatives specialist, Don Dale, offers a thoughtful case for why the CBOE Volatility Index (VIX) is not broken, despite punditry claims to the contrary. Two pearls of wisdom, up front: 1) Pundits like to complain; and, 2) Be careful what you wish for!
Don Dale, Chief Risk Strategist for Equity Risk Control Group, is a guest contributor to the Alphacution Feed. I am not a funny guy. (Ask my wife...) And yet, occasionally - when I say the quiet part out loud - I manage to get a laugh. My latest bit is an idea about how to "fight the Fed." So, while you may enjoy a chuckle at the thought, here's why I think things might be different this time: The “Fed Put” is a common reference in capital market circles – particularly since the GFC – given their increasingly likely position to backstop some asset classes. Of late, the Fed’s actions were the driving force behind the stabilization of the bond market since the March gyrations; by extension, the equity markets. However, the primary driver for equity market performance within US indices has been the mega cap FAANGM names, given the thematic benefit of social distancing on factors like home delivery, video bingeing and all manner of online interactions. This [...]