Lighter allocations to equities may also take the edge off potential selloffs, said Max Grinacoff, U.S. The 10-day average daily trading volume in VIX options has slipped to about 360,000 contracts, the lowest since early January, according to a Reuters analysis. Lighter positioning means investors are not exhibiting the same rush to load up on options insurance against a downside move in stocks, a factor that can moderate the VIX's rise even if stocks come in for another bout of weakness. "You have a situation where the catalyst for an explosive equity crash is not as prevalent as it might have been in the past." "Institutional positioning in equities is at the low end of its historical range," said Anand Omprakash, head of derivatives and quantitative strategy at Elevation Securities. Equity positioning for both discretionary and systematic investors remains in the 12th percentile of its range since January 2010, according to a July 29 note by Deutsche Bank analysts.
One factor that could help dampen market volatility in coming months is limited exposure to stocks among institutional investors, who earlier this year raced to cut their stock allocations as the Fed ramped up expectations that it will fight inflation with market-bruising interest rate hikes.ĭespite the recent bounce, big investors' exposure to stocks remains low. The bank has a year-end target of 3,600 on the S&P 500, about 14% below current levels. "We view this as a bear market rally," wrote Savita Subramanian, equity and quant strategist at BofA Global Research in a report, noting that such rebounds have occurred an average of 1.5 times per bear market since 1929.
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