Volatility: Buy some protection before heading to the beach

Analyst at JP Morgan Fernando Cavia sent the following comments on Tuesday regarding volatility and protection:

“For the last weeks we have seen:

-The absence of demand for protection during periods of “mini market correction” (slight complacency?).

– The majority of activity is focused on the upside, taking advantage of the market side to play the rebound and make overwritting.

Long term (2 years or more) volatility is at especially attractive levels.”

He notes that in the past two weeks the situation may be changing already:

“The theme “Protection” is gaining popularity among European institutional investors due to several reasons that seem to threaten the potential of equities in the future. Without going any further, these days we have seen some large HFs being clearly short of equity.

The reasons for this caution are potential growth in Europe and the USA, the possible weakness of corporate results and the FED policy (and the next tightening).”

At JP Morgan they don’t believe that any of these aspects are important enough to constitute a real threat.

“We see a few relatively good macro data on both sides of the Atlantic, progressive improvement in business results, and the “tightening” of the FED for Q1 or Q2 of 2015 as a logical result of solid economic growth,” the weigh in.

However, many institutional investors are starting to look at alternatives in terms of protection concerns, with some of them starting to operate.

 

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