Preparing For The Next Bout of Volatility

by / / Articles, Trade Ideas
After nearly 9 years into the equity bull market, a strong US economy coupled with signs of inflation starting to make it’s way into the system has lead to interest rates in the US starting to rise. The United States 10-Year Government Bond Yield recently rose to 2.90%, it’s highest level in four years. While the yield has been rising over the past few months, the threat of the rapid rise in inflation saw equity markets sell off in dramatic fashion, with a 12% decline on the MSCI All-Country World Equity Index from the peak of 550 on 29-JAN to the low of 491 on 09-FEB 2018.

With that we saw volatility, as measured by the CBOE Volatility Index rise to it’s highest level in over 4 years, testing 50 from a reading of 12 just 3 days prior.  

MSCI All-Country World Equity Index vs CBOE VIX
A look at the daily chart of the MSCI ACWI sees the price nearing the 61.8% Fibonacci Retracement level, a common technical resistance area and a level where sellers may again start to emerge.


Technically, we saw a break of the long term downward trend and with a re-test of the breakout level currently taking place, giving traders a second opportunity to take a long position.

Here, my idea would be to buy an 
Out-The-Money Call Option on the CBOE Volatility Index, taking a 6 to 8 week view with the expectation that we may see another move lower on global indices and another spike in volatility.

Trade Details

Buy OTM Call Option on CBOE VIX

Expiry Date: 18 April 2018

Strike: 28.00
Underlying level: 20.60 (last close)


Lester Davids

Lester Davids

Trading Desk Analyst at Unum Capital
Lester started his career as an intern in the Group Schemes Risk Management department of Old Mutual in 2006 after having attained his National Diploma in Internal Auditing from the Cape Peninsula University of Technology. After a year and four months of service he took up the opportunity offered by Deloitte's Risk Advisory Services for a three-year contract as a Trainee Internal Auditor.

Whilst searching for employment after his had contract expired, he made the decision to document his ideas for his personal passion which was financial markets with a view to build a public profile and record of all work.

His passion for investment and market-related content dates back to his love for reading having started to notice the financial market data alongside the sports pages as a university student in 2004.

Lester is Trading Desk Analyst and has been with Unum Capital since July 2016.
Lester Davids