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Best Way to Play Volatility: Strategists

Wednesday, 5 Oct 2011 | 2:38 PM ET

Just about everybody on Wall Street thinks volatility is here to stay. What they disagree over is what investors should do about it.

Traders buy and sell crude oil futures contracts at the New York Mercantile Exchange.
AP
Traders buy and sell crude oil futures contracts at the New York Mercantile Exchange.

Volatility continued to haunt equities Wednesdayas traders struggled to make sense of various reports from the euro zone and ahead of Friday’s monthly government non-farm payrolls data.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, has been trading near 40 for the last few weeks.

Strategists such as Rob Morgan of Fulcrum Securities warned investors that the market choppiness will continue for “at least for some period of time in the foreseeable future,” adding that the best way to play the volatility is to defend against it.

“I cut back my weighting on stocks two months ago and I’m still not ready to jump in yet,” Morgan told CNBC. “Until we start to see some higher lows, I’m not so positive on stocks. But given that, I’d be in the defensive plays, large-cap dividend-paying stocks and the sectors I like continue to be energy, materials and health care.”

Meanwhile, David Katz, chief investment officer at Matrix Asset Advisors said stocks are at “compelling valuations” and suggested investors buy amid the selloff.

“The market’s at 11.5-times earnings, which is the cheapest it’s been in 20 years,” Katz told CNBC. “One thing you can do with volatility is when markets are lower, pick companies that you like and buy them into the weakness.”

“A year from now, you’ll be very happy,” he said.

Questions? Comments? Email us at marketinsider@cnbc.com

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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