Investors Remember ‘Stocks Can Go Down Too’ in Return to Hedging

-- Hedging is back as investors fret over concerns about everything from the US presidential election to second-quarter earnings, economic growth and interest rates.Trump’s Remarks Spark Rebuke From Mexico’s President-ElectThe Cboe Volatility Index, a gauge of options prices, surged the most in more than a year last week as stocks sank with growing calls for Joseph Biden to quit the presidential race.

With increased chances of Trump winning the presidency largely baked in, positioning in the rates market is shifting to gauge the chances of a cut at the end of this month or a bigger one in September.Some of the froth has come out of the stock market as earnings ramp up.

When it comes to equity options, not only have puts been bid up, but calls are also under pressure, according to Nations. His company’s index of call volatility was down 6.3% on Friday. That may be a sign traders are willing to risk being short bullish contracts, expecting implied volatility to ease if the S&P 500 rebounds.

While it’s still too early to tell whether the shift in positioning will last, the quieter summer days may exaggerate moves.

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