The Golden Age of Volatility

Over the past decade, the capital markets have undergone periods of extraordinary volatility. The amount of wealth created and destroyed in such a short time frame is enough to rattle even the most stalwart investor.

In response to this volatility, hedging through the use of options and other derivatives has seen widespread adoption; that which was originally esoteric and limited to specialists can now be used by retail traders with the click of a mouse.

August 2011 is one of those times, and it is during this period when this piece was written. The equity market’s steep correction left many investors holding their assets at much higher prices than market, and fear certainly stepped into the arena. The volatility ushered in record demand for option contracts.