Gold prices slip lower; consolidating after recent gains
Monday brought insights from UBS strategists, including Max Grinacoff and Gerry Fowler, who observed that the volatility, as measured by the VIX index, has shown a notable decline following initial spikes.
These spikes were attributed to the impact of news from DeepSeek and recent tariff threats. The strategists highlighted that approximately half of the VIX’s initial surge has been retracted in less than a week.
The analysis by UBS suggests that several factors are contributing to the suppression of index volatility. Record levels of dispersion are playing a role, along with a long gamma overhang that is tempering intra-day movements. Additionally, they noted that systematic strategies are starting to re-leverage following market sell-offs.
Despite the market’s quick recovery from volatility spikes, UBS’s "Early Warning Signal" (EWS) remains in neutral territory. The EWS indicates a 60% chance that returns will fluctuate between +/- 5% over the coming month. In this context, UBS strategists are advocating for the sale of SPX straddles when the EWS is neutral.
Moreover, while UBS continues to favor VIX upside positions, they advise a tactical approach to both entry and exit points. The strategists emphasize the importance of timely monetization in response to a VIX spike, particularly for those hedging within the VIX complex. This approach underscores the need for strategic maneuvers in volatile markets.
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