A hedge fund portfolio manager highlighted an interesting observation to me this week that I believe investors should be paying close attention to as markets transition through this historically volatile time of the year. To be clear, I am not an option or volatility expert but the chart below is noteworthy from a technical perspective and is likely to provide an important signal for equity markets in the coming months.

The top panel of this week’s chart is the 7-month volatility (VIX) futures contract (March 2021). The relatively high level of this contract at 27 shows that investors remain worried about equity markets into Q1 2021.

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What I find interesting is that a similar technical set up was in place heading into the fall of 2012 which also happened to be an election year. I remember that time frame well and a lot of the clients I was speaking with at that time were very worried about a variety of issues facing the market: notably the economy, Brexit and the election. So, in hindsight, it wasn’t that surprising many investors were paying up for option protection for the upcoming 2 quarters.

In many ways, the option market today reflects the same uncertainty looking forward over the coming 2 quarters. What’s going to happen with COVID, the economy and the i...

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