"My advice would be ... for a retail investor, to sit tight and stay away from the options market," Garrett DeSimone, head of quantitative strategy at analytics firm OptionMetrics, told CNBC'sThe VIX closed at its highest level ever — 82.69 — on Monday, above its financial crisis peak from 2008.
"These are all-time fear levels. So, an investor looking to get into hedges would find it very difficult to monetize those hedges quickly," DeSimone said. "My suggestion would be to take small bites [of] some of the companies that they're interested in and stay away from very highly levered firms." In part, DeSimone's call for caution was tied to the fact that "the typical safety trade did not really work out" during the market's recent swings. Traditional "safe haven" sectors like utilities, consumer staples and real estate have plunged sharply along with the broader market in recent weeks, even as staples have taken a smaller hit than other groups.
Additionally, hedges against the widespread weakness "have been built up very significantly. The typical put buying we see has become very, very expensive," DeSimone said.What investors should be doing is keeping a close eye on"If we look forward to the balance-of-risk statement that's going to be released [Wednesday] ... the language should contain some information about their forward guidance, what next steps there might be," DeSimone said.
As such, the Fed could take experimental actions to combat the unprecedented volatility roiling markets, he said.
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