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Using Derivatives to Manage Volatile Markets

May 4, 2020

Broad-based multicountry multicurrency derivatives saw a sharp increase in volumes and open interest during the challenging market conditions of the first quarter. Sourcing liquidity when it is needed can be vital for equity investors, and these instruments may have been used to manage equity and foreign-currency exposures. Hedgers using outright put options paid materially higher premium in Q1 2020 compared to recent years to protect their portfolios. Alternative hedging approaches such as put-spread collars have been less sensitive to changes in volatility, but have had the added risk of less tail-risk protection and lower upside participation.

Read MSCI’s latest article, ‘Using Derivatives to Manage Volatile Markets,’ featuring OptionMetrics data below.