Where Art Thou, Volatility?


Even though the stock market ends the week on pace for the worst June since the Great Depression, and retreating close to bear market territory, the CBOE Volatility Index, a metric traders use to weigh market risk, has stayed relatively tranquil.

The VIX, or “investor fear gauge” as it’s known, usually spikes preceding a big move downward. But this week’s move hasn’t been anything close to what Karen Finerman would have expected considering the bloodbath in the broader market.

That said, she does expect volatility to increase if the selloff continues. Her strategy? Buy puts and ETFs as ways to hedge risk. On washout days, like Thursday whenthe Dow Industrials dropped nearly 350 points, Finerman said she normally would have sold those puts into the panic but is now holding them until the volatility index spikes again (which would make the puts more valuable).

Trader disclosure: On June 27, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (BTU), (NUE), (GS), (INTC), (MSFT); Pete Najarian Owns (ANR), (TSO), (XLF); Pete Najarian Owns (AAPL) Calls, (EK) Calls, (QID) Calls, (RIMM) Calls, (YHOO) Calls; Pete Najarian Owns (HRB) Puts, (MER) Puts; Finerman Owns (GS); Finerman's Firm Owns (MSFT), (NYX), (SUN), (TSO); Finerman's Firm And Finerman Own (C) And (C) Leaps; Finerman's Firm Is Short (SPY), (IYR), (IJR), (MDY), (IWM); Finerman's Firm Is Short SPX Index Puts; Terranova Owns (BNI), (CME), (FXC), (LUV), (GOOG), (FCX), (INTC), (IYT), (XLF), (SU), (YHOO); Terranova Owns Dollar Index Futures

Terranova is chief alternatives strategist at Phoenix Investment Partners;; Phoenix Investment Partners Ltd. Owns (RWX), (DBC), (DBV), (IGE), (AAI), (ALK), (AMR,) (APA), BP plc, British Airways plc, (CHK), (CVX), (COP), (CAL), (DAL), ENI SPA, (XOM), Gazprom, (HA), (HES), (HOC), (HSE), (JBLU), Lukoil, (MRO), (MUR), (OXY), Petrobras Intl Fin, Petro-Canada, (PBR), Petroleos De Venezuela, (QAN), (RJET), Royal Dutch Shell plc A Shares, (SKYW), (LUV,) (SU), (TSO), Texaco Capital, Total SA, (UAUA), (LCC), (VLO)