Investors are increasingly hedging against market risks, as rising tail risk indexes and VIX skew reflect caution over tariffs, Fed policy, and global conflicts despite U.S. stocks hitting record highs.
But several barometers gauging uptake for protection against extreme market swings - such as the Nations TailDex Index and Cboe Skew- are picking up. While the rise in these indexes does not necessarily mean investors expect catastrophic events, they suggest elevated caution in the face of several weighty risks, including the potential of an inflationary snap-back to ructions in global trade next year.
One such risk came to the fore late on Monday, when Trump pledged big tariffs on Canada, Mexico and China - detailing how he will implement campaign promises that could trigger trade wars.
Though U.S. stocks largely shrugged off the comments, Trump’s broadside evoked flashbacks to the trade-fueled market swings that took place during his first term, bolstering the case for portfolio hedging.
Amy Wu Silverman, RBC Capital Markets head of derivatives strategy, said investors are guarding against so-called fat tail risks, options parlance for higher expected probabilities of extreme market moves.
"While investors broadly remain long equities, the tails are fatter," she said. "This is partly from a rise in geopolitical risk premium and certainly potential policy risk as Trump returns to the presidency and potentially enacts tariffs and other measures."
The Nations TailDex Index, an options-based index that measures the cost of hedging against an outsized move in the SPDR S&P 500 ETF Trust, has risen to 13.64, double its post-election low of 6.68. The index is higher now than it has been about 70% of the time over the past year.
Cboe Skew index, another index that indicates the market's perception of the likelihood of extreme price movements, on Monday closed at a two-month high of 167.28.VIX call options, which offer protection against a market sell-off, also shows some of this demand to protect against "tail risks." VIX three-month call skew - a barometer of the strength of demand for these contracts - is hovering near the highest level in over five years, according to an analysis by Susquehanna Financial Group.
Iranian Supreme Leader Ayatollah Khamenei has ordered Iran's armed forces to respond to any threat immediately and without geographical li...
A tenth-grade student was critically injured after a man attacked her with a chainsaw inside a classroom in Andhra Pradesh’s Anantapur distri...
Cryptocurrencies are volatile, and their crashes make headlines. But does a slump in digital coins ever spill over into the pounds, dollars and eur...
The Middle East conflict remains tense as diplomatic efforts continue alongside renewed Houthi attacks. Iran says it remains open to mediation, while the Saudi-led coalition says it intercepted a ballistic missile fired towards the kingdom.
Evacuations and the provision of humanitarian aid in the Russian-occupied southern Ukrainian town of Oleshky have begun, a senior Ukrainian official said on Friday. In a statement on Telegram, David Arakhamia said a six-day ceasefire was holding, and that more details would follow.
Qatari mediators returned to Tehran on Friday as part of efforts to reach a deal between the U.S. and Iran, according to an official briefed on the talks.
Russian President Vladimir Putin said Russia remains willing to rebuild relations with European countries but warned that any wider conflict on the continent would leave no winners, as he commented on recent diplomatic contacts with Nordic leaders and growing security concerns in the Baltic region.
Hackers have pulled off a staggering $6.3 billion cryptocurrency heist targeting Binance, shaking confidence in one of the world's biggest digital asset exchanges and sending crypto prices tumbling. U.S. analysts suspect North Korea was behind the attack.
Cryptocurrencies are volatile, and their crashes make headlines. But does a slump in digital coins ever spill over into the pounds, dollars and euros in people's bank accounts? The short answer is not directly, but indirectly it can, and regulators are increasingly worried about how.
Russian President Vladimir Putin has praised record trade with Egypt as Moscow seeks to use its economic ties with Cairo to expand its influence across Africa, with a focus on manufacturing, infrastructure and energy.
Kazakhstan could begin building its first nuclear power plant in 2027, President Kassym-Jomart Tokayev said on 28 October, according to Azertac. But as Central Asia steps up its energy ambitions, which countries are investing in nuclear power and which are pursuing alternatives?
Apple's latest iPhone 18 Pro series has outperformed its predecessor in early global sales, even as rising manufacturing costs and weaker demand in some markets put pressure on the smartphone industry, according to Counterpoint Research data released on Tuesday (27 October).
Uzbekistan is moving into a new phase in the development of Islamic finance, with the country’s first Islamic banking licence issued shortly before a regional forum in Samarkand brought together industry players to discuss how the sector can expand across Central Asia.
You can download the AnewZ application from Play Store and the App Store.
What is your opinion on this topic?
Leave the first comment