Monetary Policy Outlook Lifts Volatility Expectations

By D. David Jilek, CAIA®

Highlights

  • D. David Jilek, Chief Investment Strategist at Gateway Investment Advisers, notes that while Federal Reserve policy has been driving market volatility, index options strategies can benefit.
  • The Cboe® Volatility Index (VIX®) futures curve has reflected market expectations of implied volatility remaining in the mid- to upper 20s for much of 2022 – above its historical average.
  • Even though implied volatility tends to rise when the equity market falls, historical analysis of calendar years with above average volatility shows that this isn’t always the case.
  • Low-volatility equity strategies that rely on cash flow from index option selling to mitigate equity market losses as well as participate in equity market advances, like those managed by Gateway since 1977, can be particularly attractive during these times of high volatility.

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