In the wake of the February 27th spike in volatility, I recommend going long the Chicago Mercantile Exchange (CME), now know as CME Group following the completion of their merger with the CBOT, as a back door hedge against increased volatility. After a week of market turmoil, I noticed that Barron's is now making a similar recommendation, Business Week has described "a sea change in the way trading is done," and an AP story confirmed an ever growing bandwagon last Friday, when CME closed with an impressive 19.00 gain.
Even if volatility settles back into the mid-teens, I still think CME is a strong play, with the most recent quarterly results supporting that idea. If, however, the VIX continues with a 20 handle past Labor Day, then I suspect CME could be a much bigger winner than many on the current bandwagon expect.
Of course, regular readers will be quick to recall that predicting volatility one month out can be a humbling experience...
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