Another relatively quiet day in the market. VIX is down to 18.7, the April VIX futures continued to fall.
Wall Street Journal had an article today about VIX being low.
There are a few reasons for the VIX to be this low:
-the realized volatility for the S&P over the past month is 11.6%. For the past 3 months it is 14.8%.
-the Greek credit crisis is easing. The CDS on Greece dropped below 300 bps yesterday (from the high of 420 bps)
-relatively positive economic news from US
-the market is up sharply from February lows
On the other side, the biggest argument against a low VIX is the high yield OAS. Early January when the VIX was below 20, the high yield OAS was around 5.9%. Yesterday the OAS was 6.4%. So the OAS has to come down or the VIX has to go up.
Tomorrow's job report could be a turning point.
Thursday, March 4, 2010
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A friend of mine asked me to help him with hedging strategies.
ReplyDeleteHe's hot $2 miliion portfolio invested as follows:
50% fixed income and cash - $1 million
50% stock equities - $1 million
I suggested that he shoul buy out of the money ^VIX calls.
What he's not sure is:
1) how far out of the money should he be buying (strike prices)
2) how many call contracts should buy to protect $1 million worth of the stocks he holds
3)should he be buying 1 month calls, 3 months calls, 6 months calls? What are the cheapest expiration dates?
If you have experience, please post. You help is much appreciated.