Advisors explain how they position portfolios while protection stays cheap
The Cboe Volatility Index, or VIX, closed at 17.84 on September 10, up 8.38 percent in a single session and above the long-term median of 17.6.
Cboe data put the previous close at 16.46 and the 52-week range at 13.38 to 35.30.
Reuters had reported a day earlier that the gauge sat near 15 and that volatility measures were near 2026 lows, with two months to run until the November 3 US midterm elections.
"Calm or volatile markets do not create a need for change. Markets can remain calm for a long time and offer a constructive investment environment," Josh Sheluk, portfolio manager and chief investment officer at Verecan Capital Management, said in an email to Wealth Professional.
Volatile markets can be equally constructive, he added.
"The most important thing is reminding yourself that calm will not last and ensuring that you are prepared, mentally and financially, for volatility to return," Sheluk said.
"It feels comfortable to seek safety when things are volatile, but volatility often presents the best opportunity and the most expensive time to seek safety," Sheluk said in his email to Wealth Professional, attributing mistimed hedging to behaviour rather than analysis.
He closed the point with an investing maxim: "As the saying goes, be greedy when others are fearful, and fearful when others are greedy."
A Cantor Fitzgerald analysis cited by Reuters found the S&P 500 has fallen 5 percent or more over the September-to-October stretch in 15 of the 24 midterm years since 1930.
Michael Purves, chief executive of Tallbacken Capital Advisors, told Reuters the VIX curve was not expressing any premium for the midterms, and that earnings alone had been driving the equity market.
Olivier d'Assier of SimCorp said in the same report that three years of losses on short positions had left investors reluctant to hedge again, while Evercore ISI's Julian Emanuel wrote in a note cited by Reuters that implied volatility looked compellingly cheap against midterm risk, with a House flip, magnified by a Senate flip, adding uncertainty.
In an email to Wealth Professional, James Learmonth, co-chief investment officer and portfolio manager at Harvest ETFs, said expected volatility, also called implied volatility, "plays a significant role in determining the price of an option."
Low implied volatility should reduce the cash flow a covered call strategy generates, all else equal, he said.
Learmonth said an active covered call strategy can raise write levels during quiet stretches, usually up to a pre-specified maximum, to offset cheaper options.
Higher volatility lets the strategy write against less of its underlying equity position, write at higher strike prices, or both, he added, so it can "participate to a greater extent in any potential market rally" without losing cash flow stability.
"A historically seasonally weak period for markets through September, elevated geopolitical tensions, an uncertain path for US monetary policy and US mid-term elections all threaten to lead to higher levels of market volatility," Learmonth told Wealth Professional.
He described a barbell that pairs growth and pro-cyclical exposure in technology or industrials with defensive positions in health care and utilities, which in his view can "reduce overall portfolio risk while remaining invested for a time when the clouds of uncertainty part."
Equity and corporate debt valuations appear increasingly stretched compared with historical levels, the Bank of Canada said in its Financial Stability Report 2026, published May 28, adding that stretched valuations raise the likelihood of a sharp correction if a shock occurs.
Senior deputy governor Carolyn Rogers said in her opening statement the same day that individual vulnerabilities looked manageable, while a more volatile environment made it likelier that several could crystallize at once.
The S&P/TSX Composite Index was down 289.79 points at 35,616.77 in late-morning trading on September 10, as oil topped US$100 a barrel, according to BNN Bloomberg.
"It's important for investors to have an honest assessment of their time horizon and risk profile," Sheluk said. "If either does not align with the inherent volatility of markets, then the investor should not be in the markets."
Diversification will not eliminate volatility, he added, but it can mitigate volatility in a way that makes desired outcomes achievable.
