Interestingly, the gap between volatility expectations in the U.S. and Europe has expanded to its widest level since the lead-up to the June 2016 Brexit vote. This is based on the spread between three-month futures on the CBOE Volatility Index (VIX), which are coming off a record short position, and Euro Stoxx 50 Volatility ETF (VSTOXX) -- the main fear gauges for the U.S. and Europe, respectively. According to BMO Capital, the "widened gap shows the market is pricing in significantly greater uncertainty in Europe than the U.S."
How should options traders play stocks in this climate? Earlier, Schaeffer's Senior V.P. of Research Todd Salamone recommended a short-term stock replacement strategy, in light of potential policy shakeups from the Trump administration and Fed. Specifically, Salamone noted that a possible volatility pop "is a risk worth keeping on your radar, especially if the market gets spooked by the Fed or by disappointing news out of the White House."
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