The sharp drop-off in markets earlier this week added to a more gradual recent decline that has put to the test just how well retail investor portfolios have hedge protection built in to soften the blow when stocks decline.
The volatility index, one possible ETF option Reid pointed to as a way to see some gains when equities decline, shows how quickly insurance prices can shift. After trading mostly around 13 in recent months, the CBOE Volatility Index shot up to above 65 on Monday before closing at almost 39, its highest level since the early pandemic panic. It’s since come down to roughly 26 as of Thursday morning, but that’s still a big markup from last week.
BMO launched some buffered ETF options last October, which provide protection against the first 15 per cent of market declines while also capping gains at 10 per cent. The buffer ETFs offer the 15 per cent downside protection for a year on an S&P 500 reference index, based on where markets are when they're issued. So an investor buying in now to the July offering has already lost some of that buffer.