NEW YORK - As U.S. stock prices have marched to record highs, futures contracts for Wall Street’s “fear gauge” show some investors are buying insurance against market turbulence that could erupt if surprise glitches hit the U.S. rollout of COVID-19 vaccines.
Uncertainty over the rollout has also helped keep the “fear gauge” hovering above its long-term average near 20, even as the S&P 500, Dow Jones Industrial Average, Nasdaq and small-cap Russell 2000 have rallied to record highs this week. Breakthroughs in COVID-19 vaccines and assumptions that life will return by summer to a semblance of normalcy have helped boost the S&P 500, now up more than 70% from its March lows.
Yet missed vaccination targets could bolster the case for investors looking to take profits, potentially ushering in more market swings. Fund managers in a recent BofA Global Research survey named potential problems with vaccine distribution as the market’s top “tail risk” - an event that could cause severe dislocations in asset prices.
Arnim Holzer, macro and correlation defense strategist at EAB Investment Group, is advising clients to sell February call options on the Barclays iPath Series B Short-Term Futures ETN, an exchange-traded note tied to the VIX, while buying March call options on the same ETN. VXX call options are often used to protect against a pickup in volatility.
Some 15.1 million people have received at least one dose of the COVID-19 vaccine in the United States - short of former President Donald Trump’s goal of vaccinating 20 million Americans by the end of 2020.
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