Two weeks ago, ZEGA CEO Jay Pestrichelli appeared on Seeking Alpha’s show to discuss interest rates and volatility.
It’s worth noting that this interview was recorded prior to last week’s geopolitical events concerning Russia and Ukraine. Jay did mention at the time the market baking into volatility measures like the VIX Index a higher probability of a conflict. Volatility only extended higher once Russia moved on Ukraine.
This interview focused a bit more on the Fed, interest rates, and hedging.
Jay explained that one of the risks to the market is a Fed misstep where they raise rates too much without materially reducing the rate of change in inflation. We’ve not been convinced raising rates will reduce a supply side issue that originated in the government fiscal response and COVID.
Finally, as we transition from record low rates to a Fed tightening cycle and inflation, bonds may come under pressure in portfolios.
So how to remain invested in the market with downside hedging? Compared to the classic 60/40 stock and bond portfolio, Buy and Hedge does not have that same interest rate risk. Protect against market volatility, large downside moves, all while capturing a good percentage of the upside.