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.
Start your day informed with AnewZ Morning Brief: here are the top news stories for February 22nd, covering the latest developments you need to know.
Australia has accused China of failing to provide sufficient notice ahead of a live-fire naval drill between Australia and New Zealand, forcing airlines to alter flight paths. Defence Minister Richard Marles described the lack of communication as “disconcerting” for commercial aviation.
U.S. Secretary of State Marco Rubio and Kenyan President William Ruto have called for an immediate ceasefire in eastern Democratic Republic of Congo (DRC) amid escalating violence. Their appeal follows the capture of key cities by the Rwanda-backed M23 rebel group.
U.S. negotiators have reportedly raised the possibility of cutting Ukraine’s access to Elon Musk’s Starlink satellite internet system as part of pressure to secure a critical minerals deal. The discussions come amid growing tensions between Kyiv and Washington over repayment for wartime aid.
Ukrainian President Volodymyr Zelenskyy has confirmed that Kyiv and Washington are working on an economic deal, but tensions remain over U.S. demands and Ukraine’s exclusion from U.S.-Russia peace talks.
The U.S. and Ukraine are close to finalizing a deal granting the U.S. mineral rights in exchange for military aid, according to Wall Street Journal.
As US-Russia peace talks advance, Ukrainian President Volodymyr Zelenskyy intensifies diplomatic efforts, holding discussions with multiple world leaders to rally support for Ukraine’s sovereignty and regional security.
Hamas has begun releasing six more hostages from Gaza on Saturday in exchange for hundreds of Palestinian prisoners, as Israel confirmed that a body handed over earlier was that of hostage Shiri Bibas.
A tragic crowd crush at New Delhi Railway Station on Saturday night left 18 dead and 10 injured as thousands of people, many heading to the Kumbh Mela festival, attempted to board delayed trains. The incident highlights the ongoing risks of overcrowding at public transportation hubs in India.
A Delta Air Lines regional jet flipped upside down upon landing at Toronto Pearson Airport on Monday, injuring 18 people. Officials are investigating whether strong winds and snow played a role in the incident.
Berlin, February 21, 2025 – German citizens will head to the polls on Sunday, February 23, for a snap general election after the coalition government collapsed late last year.
Russia has resumed wheat exports to Kazakhstan after lifting a ban that was in place until December 31, 2024.
The European Union will seek more gas from countries including the U.S. to replace Russian supplies, and expand renewable energy faster to cut its overall reliance on the fuel, the EU's energy commissioner has said.
BEIJING, Feb 20, 2025 – China is “doing its best” to push for talks with the European Union over tariffs imposed on Chinese-made electric vehicles, a commerce ministry spokesperson said on Thursday.
Berlin, February 20, 2025 – Mercedes-Benz has launched a fresh cost-cutting initiative aimed at reviving sales and margins, as the German carmaker forecasts a significant drop in earnings in 2025.
The Asian Development Bank (ADB) has approved a plan to scale up its operations by 50% over the next decade, leveraging its existing capital base to enhance bank’s impact across Asia and the Pacific.
The U.S. and Ukraine are close to finalizing a deal granting the U.S. mineral rights in exchange for military aid, according to Wall Street Journal.
As US-Russia peace talks advance, Ukrainian President Volodymyr Zelenskyy intensifies diplomatic efforts, holding discussions with multiple world leaders to rally support for Ukraine’s sovereignty and regional security.
Hamas has begun releasing six more hostages from Gaza on Saturday in exchange for hundreds of Palestinian prisoners, as Israel confirmed that a body handed over earlier was that of hostage Shiri Bibas.
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