Is Jeffrey Gundlach Long on the CBOE Volatility Index?
Jeffrey Gundlach on the volatility index
In the previous part of this series, we saw that Jeffrey Gundlach bought the put option of the S&P 500 index (SPY) and he expects that the index could fall 3% by the end of 2017. In this part, we’ll have a look at the volatility index. Gundlach is positive about the market volatility index (VIX).
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Gundlach said, “I think going long the VIX is really sort of free money at a 9.80 VIX level today. I believe the market will drop 3 percent at a minimum sometime between now and December. And when it does I don’t think the VIX will be at 10.”
Performance of the volatility index
The CBOE Volatility Index (VIX), which measures volatility in the S&P 500 Index (QQQ)(IWM), also known as the “fear index,” rose suddenly by nearly 46.3% on May 17, mainly due to the political reasons. Again, on June 29, when the technology sector dragged down the performance of the S&P 500 index, the CBOE volatility index jumped to nearly $15.16 from $10.03 on June 28.
We’ve already seen in past events, China’s (FXI)(YINN) yuan devaluation and the Brexit referendum, that the VIX index rose nearly 143%, and 56%, respectively. Volatility generally picks up when stocks fall, and vice versa. As the volatility index remained near its historic lower level, taking a long position on the VIX index could provide a strong return in the near future.
In the next part of this series, we’ll analyze Gundlach’s view on the Trump administration.