Volatility index expert: Don't be confused by the rebound in US stocks, quickly buy S&P 500 "downside insurance"

The US stock market just rebounded strongly from its lows, but some market volatility observers are warning not to get too excited too early. Experts including Susquehanna International Group and TD Securities strategists are urging investors to buy "insurance" in the options market in case the stock market falls back to the lows seen earlier this month. After a 10% rebound from its April low, hedging tools have become cheaper. One-month put options on benchmark indexes used to hedge against market declines are currently at their lowest price levels since April 2 when President Donald Trump announced his large-scale tariff policy. Options experts point out that while the market is cheering signs of Trump's willingness to soften his tough trade policy, the uncertainty remains about how the tariff issue will be resolved and what damage it will ultimately cause to the US economy. The tariff on China remains as high as 145%, with little hope of a short-term resolution, while the three-month suspension of tariffs on other countries will expire in July. Rocky Fishman, founder of research firm Asym500 LLC and former head of index derivatives strategy at Goldman Sachs, said, "There are still many critical economic issues on hold, whether it's the tough tariff situation with China or the comprehensive 10% tariff. I think the market underestimates the potential impact of these issues on investor confidence." Indeed, not everyone is calling for stronger portfolio protection. After the S&P 500 index fell to the brink of bear market territory this month, gaining back about half of its losses, bullish investors believe that if the market were to crash again, the White House is likely to further ease trade policies. The S&P 500 index has risen for five consecutive trading days, the longest streak since November last year. The Cboe Volatility Index, which measures market volatility and fear, is currently at 25, lower than the peak of around 60 on April 7. At the same time, Mandy Xu, director of Cboe Global Markets Derivatives Market Intelligence, pointed out that demand for so-called "tail risk protection" (insurance for events that are unlikely but could have catastrophic consequences) has declined in recent weeks. In a report released on Monday, she wrote, this is "investors showing confidence in 'Trump put options.'" However, other market participants have a different view. Fishman of Asym500 LLC noted that realized volatility (measuring past price movements) is much higher than implied volatility (reflecting expectations of future market movements). In his view, this indicates that investors may have relaxed their guard, despite facing more potential variables in the trade war and a series of corporate earnings and economic data tests. Joseph Ferlara, investment strategist at Gateway Investment Advisers, said his firm is planning to buy put options again after selling derivatives for profit during the peak of market volatility in early April. Besides the uncertainty of global trade wars, Ferlara also worries that the summer trading lightness may exacerbate market volatility, increasing overall volatility. Christopher Jacobson of Susquehanna advised clients who are "concerned that the recent rebound is just another flash in the bear market" to hedge at current levels. He wrote last week, "Issues like the final outcome of tariffs, consumer spending power, corporate earnings, etc. still exist. The recent gains have largely been achieved in a context of generally low trading volumes, with some seeing this rebound more as a short-covering move." Meanwhile, TD Securities analyst Ling Zhou is more concerned about the prospects in the next 6 to 9 months, as economic risks may emerge during this time. He suggests selling October-expiring S&P 500 index call options and using the funds to buy put options.