What are investors doing to hedge against fresh shocks?

After a bumpy April, markets are looking steadier, though derivatives strategists aren’t convinced the calm will hold, Bloomberg writes. Many believe the broader trend of low volatility will continue, thanks to consistent option-selling by income-generating ETFs — though brief intraday shocks like the one triggered by April’s tariff announcement are expected to remain part of the landscape.

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Hedging in a two-speed market: With markets in this split state — largely stable but still prone to sudden jolts — investors are weighing two very different hedging approaches. Some are sticking with short-term trades that make money from sharp intraday swings, while others are shifting to longer-dated contracts in anticipation of a more drawn-out downturn. “While we can’t entirely rule out a sudden equity market shock, we expect a more gradual repricing driven by weaker forward guidance — in essence, a low-volatility bear market,” Antoine Bracq, head of advisory at Lighthouse Canton, told Bloomberg.

Traders are adjusting to the “Trump put”: Adding to the complexity is the growing view that future tariff-related headlines may carry less punch, given that US President Donald Trump has shown a tendency to soften his tone quickly when markets react negatively — particularly when the bond market starts flashing warning signs. Bracq says shorting futures might be the most effective hedge in theory, but timing such trades is tricky. “Because of this, we see a more practical approach in exploiting the current levels of implied volatility.”

Some hedge funds are turning to less traditional tools, like volatility knock-out (VKO) puts. These over-the-counter instrument provides protection against downward moves but expire worthless if realized volatility crosses a certain threshold. VKOs are around 40-50% cheaper than standard puts, but they offer little to no protection in the event of a panic-driven selloff.

MARKETS THIS MORNING-

Asian markets are all in the green in early trading this morning, following the news of a trade deal between the US and China. Japan’s Nikkei is up 0.2%, the Shanghai Composite is looking at gains of 0.8%, the Hang Seng is up 1.5%, and the Kospi is up 0.6%.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.2% yesterday on turnover of SAR 3.3 bn. The index is down 5.7% YTD.

In the green: SHL (+8.7%), Sico Saudi Reit (+6.5%) and Care (+4.9%).

In the red: MESC (-8.3%), Cenomi Retail (-6.6%) and Chemical (-6.5%).

THE CLOSING BELL: NOMU-

The NomuC fell 1.8% yesterday on turnover of SAR 61.0 mn. The index is down 12.9% YTD.

In the green: NBM (+8.2%), Tharwah (+7.4%) and CMCER (+7.1%).

In the red: Balady (-30.0%), Future Care (-12.3%) and Osool And Bakheet (-8.5%).

CORPORATE ACTIONS-

Jarir Marketing Company’s BoD approved a SAR 228 mn dividend payout for 1Q 2025 at SAR 0.19 per share, with distribution set for May 21, it said in a disclosure to Tadawul.