VIX has continued its march lower. Interestingly, this is exactly what happened leading up to the 2011 debt-ceiling stand-off episode, when the VIX lagged the spike in the USA CDS spreads.
We continue to think the equity volatility currently offers attractive hedging opportunities. For instance, we screen among a universe of 26 global equity indices and cross-asset ETFs with liquid options for the best equity downside hedge 1 , specifically for a repeat of the 2011 debacle. In particular, i) we identify the worst drawdown in any 3-month non-overlapping period around the 2011 debt-ceiling impasse, and ii) calculate and rank based on the payout (ratio of 2011 drawdown over current ~2m 25-delta puts). Our analysis indicates that downside protection on cyclicals (e.g., Industrials, Metals, Fins, Materials) offer among the most attractive payout ratios at current costs.
- Barclays Strategy
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