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Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Market on edge: Surging volatility
Koen Hoorelbeke
Investment and Options Strategist
Summary: Markets are reeling after President Trump’s tariff announcement and China’s swift counter-response, sending volatility soaring and futures tumbling. This article explains how to interpret the VIX, assess options positions during turbulence, and avoid panic-driven decisions.
Markets in turmoil: what to do (and not do) when volatility surges
It’s been a tumultuous week for global markets. Two days ago, U.S. President Trump announced a sweeping set of reciprocal tariffs, shaking investor confidence. The situation escalated further today when China retaliated with a 34% counter-tariff on U.S. imports, announced just before noon Brussels time—just hours ahead of the U.S. market open.
The reaction was swift:
- Volatility measures like the VIX surged, up more than 30% intraday.
- Futures on major indices dropped sharply, with the S&P 500 and Nasdaq futures down nearly 4%.
- Global stock indices followed suit, sliding across the board.
Important note: The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
The VIX: what it’s telling you
In uncertain markets, the VIX serves as a real-time indicator of investor sentiment. A rising VIX reflects growing uncertainty, often triggered by unexpected events or policy moves. When the VIX remains high and shows no sign of returning to more typical levels, it reflects the market’s view that uncertainty will persist for the foreseeable future.
This doesn't predict direction or outcomes. Instead, it highlights that markets are bracing for wider price swings—regardless of whether they turn out to be positive or negative.
Why your portfolio might look worse than it is
If you're holding options positions, the recent surge in volatility may be causing your account to flash red. It’s important to understand what’s happening under the surface:
- Bid-ask spreads widen dramatically, especially in low-liquidity names or multi-leg strategies. That can make losses look worse than they are.
- Volatility skew changes can impact the valuation of positions asymmetrically—particularly spread trades or iron condors.
- Greek behavior shifts, especially vega and gamma, can distort mark-to-market performance even if the underlying price hasn't moved substantially.
The key takeaway? The numbers you're seeing on-screen may not fully reflect the real risk or value of your position.
When it’s time to act—and when it’s not
Understanding when to take action is essential in markets like these.
Consider adjusting or closing if:
- You’re short options that are getting breached (especially naked legs).
- A position is at risk of assignment or margin requirements are increasing.
- You're near expiration and need to manage time decay under high volatility.
On the other hand, consider holding steady if:
- You’re in a long-volatility strategy (e.g., long puts or debit spreads).
- Your trade has ample time left and is structured to withstand wider swings.
- Losses are primarily due to spread widening, not real price movement.
In some cases, waiting for the storm to pass may result in pricing normalizing without needing to act.
Final thoughts
Today’s environment is a reminder that markets are driven as much by psychology as fundamentals. The VIX doesn't tell you what will happen next, but it does offer insight into what the market fears might happen. And when fear is elevated, it’s easy to act on emotion rather than strategy.
Stay calm. Understand the mechanics behind your positions. Make choices based on your objectives—not short-term moves or flashing P&L swings.
That discipline can be your biggest advantage.
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