Alpha Tracking

Harness Volatility & Create Opportunity

Long Term/ IT/ Large/ Fund Manager

Sahil Sharma

17 Aug 2022

Summary :

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While the CBOE S&P 500 Volatility Index (<a href="https://ycharts.com/indices/%5EVIX" target="_blank" rel="noopener" style="background-color: transparent; cursor: pointer; color: rgb(2, 130, 232); transition: all 0.2s ease 0s; font-family: "Roboto Light";">VIX</a>) has long served as a volatility yardstick for investors, often called the “fear index”, the index again stepped into the limelight in March of 2020 when it spiked to its highest level ever. With slumping stocks, rising <a href="https://ycharts.com/indicators/us_inflation_rate" target="_blank" rel="noopener" style="background-color: transparent; cursor: pointer; color: rgb(2, 130, 232); transition: all 0.2s ease 0s; font-family: "Roboto Light";">inflation</a>, and <a href="https://ycharts.com/indicators/10_2_year_treasury_yield_spread" target="_blank" rel="noopener" style="background-color: transparent; cursor: pointer; color: rgb(2, 130, 232); transition: all 0.2s ease 0s; font-family: "Roboto Light";">inverting yield curves</a>, a looming recession and climbing VIX have investors tapping into their fight or flight instincts once again. And while you may be tempted to take flight, there’s a case to be made for fighting through volatility.First, a quick VIX refresher. The VIX measures the implied volatility of the <a href="https://ycharts.com/indices/%5ESPX" target="_blank" rel="noopener" style="background-color: transparent; cursor: pointer; color: rgb(2, 130, 232); transition: all 0.2s ease 0s; font-family: "Roboto Light";">S&P 500</a>, but it isn’t calculated using the prices of the equities that make up the index. The <a href="https://www.investopedia.com/articles/optioninvestor/09/implied-volatility-contrary-indicator.asp" target="_blank" rel="noopener" style="background-color: transparent; cursor: pointer; color: rgb(2, 130, 232); transition: all 0.2s ease 0s; font-family: "Roboto Light";">level of the VIX</a> is actually determined by the number of options contracts bought and sold on those underlying securities — which may indicate hedging and bearishness, but not necessarily a sell-off.The chart below shows sluggish performance from major indices as the VIX rises in 2022. But it also shows the strong rebound following the COVID crash of 2020, illustrating that increased volatility can actually provide a buying opportunity.

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Sahil Sharma

Focus:	Equity
Sector Expertise:	IT

Harness Volatility & Create Opportunity

Summary :

Sahil Sharma

Focus:

Equity

Sector Expertise:

IT