Wall Street’s professional traders are moving to protect portfolios as the latest equity selloff raises concerns that market volatility could rise sharply after months of relative calm. JPMorgan strategists said it is prudent to maintain near-term hedges even as their broader outlook on equities remains constructive. Rather than outright dumping stocks, the Wall Street firm suggested leaning on options strategies designed to pay off if volatility spikes or geopolitical risks escalate. “The VIX appears disconnected from policy risks, but it could see a rapid catch-up if one boils over,” JPMorgan strategists wrote. The CBOE Volatility Index , or VIX, measures the market’s expectations for volatility in the S & P 500. It’s known as Wall Street’s “fear gauge.” .VIX 1Y mountain The CBOE Volatility Index over the past 12 months One favored hedge has been VIX call spreads, which offer leveraged exposure to a volatility surge at relatively low cost. Short-term upside skew in the VIX market is near the top of its five-year range, making out-of-the-money call spreads attractive if volatility begins to “catch up” to underlying risks, the strategists said. Call options give the holder the right, but not the obligation to buy the underlying security at a set price — or strike price — by a certain date. In a call spread strategy, the investor buys a call on a strike price that’s below the asset’s current price. At the same time, the investor sells a call option on the same asset at a higher strike price. This move is a bet that the underlying asset – in this case, the VIX – will see a moderate rise. Traders are also positioning for tail risks through options tied to sectors that historically benefit from geopolitical stress — defense, energy and gold. Defense stocks, including Lockheed Martin , are seen as beneficiaries of rising military spending and escalating global tensions. JPMorgan noted that Lockheed generates roughly three-quarters of its revenue from U.S. defense budgets, positioning it to gain from a potential expansion in military outlays and asset replenishment following overseas operations. Energy stocks have also drawn interest as geopolitical developments raise the risk of supply disruptions. Any escalation involving Iran could send crude prices higher through a short-term supply shock, a scenario that would likely benefit U.S. oil majors. At the same time, recent actions in Venezuela have fueled expectations that U.S. companies could gain access to the world’s largest proven oil reserves. Gold remains a favored hedge as well. JPMorgan’s metals analysts maintain a bullish long-term outlook, citing continued diversification by central banks and investors. The bank expects gold prices to climb toward $5,000 an ounce by late 2026 with geopolitical stress likely to accelerate safe-haven demand.
