Don’t be lulled by low volatility in the market, TheoTrade Chief Market Strategist Don Kaufman says in this story analyzing weekly market activity.
“The low VIX, VVIX, and SKEW mean that the professional side of trading is not hedging,” Kaufman said.
“This situation lends itself to considerable downside risk. The VIX or implied volatility is not the barometer to follow in this situation and is not in line with price action. We can sell into the abyss very rapidly when professional traders are not hedged. If the market sells off, they will have to hedge into a falling market dynamically. This environment carries significant downside risk, with limited upside potential.”
See the full story here.