Gold prices steady as traders assess Fed rate outlook after soft US data
Investing.com -- Stock market volatility is expected to rise over the next few years due to a normalization of correlation as interest rates decrease, according to Societe Generale (OTC:SCGLY).
Derivatives strategists Jitesh Kumar and Vincent Cassot noted that the level of volatility in Europe is likely to stay lower than in the United States. This is due to differing fiscal stances in Germany and the US, assuming all other factors remain constant.
Kumar and Cassot also highlighted that put spreads, a type of options strategy, are currently the most cost-effective hedges in both Europe and the US.
The strategists noted that defensive sectors are expected to perform well. However, a rise in inflation could also benefit some sectors sensitive to commodities and interest rates.
In terms of preferred option trades, Kumar and Cassot recommended bank call ratios, utilities, and miners call spreads. They also advised maintaining some exposure to China for diversification, suggesting call ratios on the FXI ETF or Hang Seng Index.
The strategists pointed out that the recent underperformance of skew, a measure of option pricing, is a result of elevated but well-hedged positioning. They also noted that the pricing of tail-risk, the risk of extreme market moves, has improved following a recent sell-off.
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