The volatility index should be used as a profit tool rather than just protection in the coming months, according to Loïc Schmid, head of asset management at Geneva Swiss Banque.
Acting on this investment idea, the bank has committed to the trading the idea by buying into a long VIX February 2017 future.
Now is the time for investors to buy in, Schmid said, as he expects volatility to pick up with the inauguration of Donald Trump on January 20 2017, and in turn S&P 500 stocks to fall.
Investors and hedge funds are likely to buy more put options amid the uncertainty in a bid to hedge the Wall Street stocks, he explained.
This would push volatility index share prices higher as a result and it is on this movement Schmid is looking to capitalise.
The target price of the index for February is between USD 18 and USD 20, he said. It currently stood at USD 11.61 on January 11, 2017 at 9:53 GMT.
‘The symmetry on the VIX is very attractive with limited downside and extensive upside in case of the unexpected,’ he said.
China could be the source of unexpected volatility, he suggested, which would see a huge upward swing in the index.
The head of asset management recalled the words of Sir John Templeton: ‘Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.’