BAML: Watch For "Fragility Event," Hedge Properly

Hedge risk? As stock market volatility is trading at odd, if not absurd lows, Bank of America Merrill Lynch’s Global Asset Allocation team doesn’t think much of the VIX as a leading indicator and advises to hedge inexpensively. In fact, they think the opposite of low volatility is about to disrupt the dead calm.

Hedge risk - Significant risk exists amid low risk signals from volatility measures

Low trading volumes, tight ranges and “limited directional conviction” has combined to push hedging costs to yearly and in some cases multi-decade lows.

But this calm is a façade, BAML analysts Jason Galazidis, Abhinandan Deb, Anshul Gupta and Benjamin Bowler assert. In a Cross Asset...