The way the week ended does leave some clues for savvy investors.
This week’s market volatility may be based on a worrisome global event, but it does present opportunities for savvy investors looking to find wins until normalization resumes, a market expert said Friday.
Stephen Mathai-Davis, a trader and founder of AI robo-investing platform Q.ai, told TheStreet on Friday that options remain a solid bet, as do other specific volatility plays.
“The response by U.S. markets was fairly surprising given the rise in major indices on Thursday and Friday,” he said in an interview. “However, volatility remains high. If this is a correct indication, then a lot of uncertainty still remains.”
Given the rapid rise in implied volatilities, it might make sense to consider selling near-time volatility as the geopolitical crisis in Ukraine evolves, he said.
“Nearly everyone was wrong about the conflict in Ukraine so far,” Mathai-Davis said in an interview. “Investors are likely better off building a diversified portfolio that can ride out near-term volatility than trying to capitalize on this conflict.
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What’s Already Priced Into the Market?
For now, the market appears to be digesting a fair amount of the Russia/Ukraine conflict with equanimity. Though all three major indices saw drops and rebounds, the way the week ended does leave some clues for investors.
“The recovery in the market at the end of this week signals that a fair amount of the conflict was already priced into the market,” Mathai-Davis said.
But that market price-in could have some opportunities, with ETFs and other products helping risk averse investors keep their powder dry.
“Even after today’s positive correction, 1-month ATM options on the SPDR ETF Trust (Ticker: SPY) are pricing in a 2+ standard deviation move,” Mathai-Davis said.
He said that right now he wouldn’t recommend buying stocks, but instead recommends investors look at things like the ETFMG Prime Cyber Security ETF (HACK) – Get ETFMG Prime Cyber Security ETF Report.
“[That] is a great way to get exposure to this sector without introducing stock-specific risk,” Mathai-Davis said. “Since the investment idea is more thematic, it makes more sense to buy a basket of stocks that represents the theme you are looking to play.”
How Does The Conflict Affect Crypto?
Mathai-Davis said that many market watchers are keeping a close eye on Eastern Europe as it remains a major center for bitcoin mining, where bitcoin is still the dominant cryptocurrency.
That market is still easily influenced: during protests in Kazakhstan, a drop in mining capacity had a negative impact on prices, which means some digital assets should be treated as risk-on assets rather than safe-havens.
“With this in mind, investors looking for defensive assets might be better off with precious metals or other commodities rather than crypto,” Mathai-Davis said. “But cryptocurrencies could benefit even more than the market if there is a big recovery.”
Want to Play It As Safe As Possible?
For investors looking to keep their gains as safeguarded as possible, a flight into precious metals seems like the traditional way to hedge risk.
But that instinct now comes with some serious caveats Mathai-Davis said, as the market faces rate rises, a European war, inflation, a pandemic and an ongoing employment issue for certain sectors.
“Since the start of 2021 there has been a substantial appreciation of the major precious metals we follow: gold, silver, platinum, and palladium. But, prices are down slightly for all four this week,” he said.
“While some of the prior price increases could be related to concerns regarding this conflict, there are many other drivers of demand, with ongoing inflation as a top worry.”
