Market has caught most by surprise lately. Not only has the squeeze from "box" lows been violent, but rotations across "plays" has been huge. P/l volatility has been big for most, but returns not great. The feedback loop of frustration has continued.
With major indexes approaching the range highs, we think timing is great for thinking about hedges. You can make the arguments for market having extended to much, or that this is the start of the real rally. Irrespective of you directional bias here, the prudent investor should think about the risk/reward and how to play it.
VIX and all global vols have collapsed post "the event". VIX is not low on a historical time horizon, but there are still uncertainties that will take time to "resolve", so expecting a much lower level of VIX looks a bit to hopeful in our eyes.
Replacing longs with upside calls is starting to look like an interesting trade here. The possible Blue Wave occurring in January should not be dismissed. Lock downs etc are other risks that are not vanishing. The question to ask here is if you are willing to replace longs with some cheap(er) upside call plays, or even call spreads (to make it cheaper)?
Replacing longs with calls, giving away some possible performance should this turn lower, while making sure you have upside convexity should the Santa rally squeeze makes sense to us here given the recent vol reset.