So basically when global CB’s raises rates to fight inflation the yields on bonds started going up. Now if the money was moving from stock market to bond market to chase higher yields then why didn’t the market crashed coz the vol must have gone up. Reason being banks create SP’s that dampens that vol effect. This is done by selling options and dumping that risk into the market. Hence the stock market never sold off and the index got pinned and you can see that in orange graph down below that how the vol was well supplied. This pinning of index causes historic dispersion and you must have experienced that yourself that how some stocks were flying and how some didn’t and then vice versa.
But Now moving fwd in 2024 if and i mean if global CB’s will start cutting rates then what will happen is there wont be those supportive flows helping the mkt stay higher. Then the vol must go up. And that is exactly what’s happening rn and you can see that the index is finally getting unpinned. The vix is moving higher but the stock market initially also moves higher and we call this vol up mkt up = meltup but soon that will turn into vol up mkt down as you can see in 2020 and 2022 and even before that. But there is a catch to this. Puts on Nifty is not so easy coz RBI can intervene anytime. Hence generally its advised to try puts on USA stock market and not markets like Venenzuela as when the crash happens Dxy is the obvious safe haven currency with liquidity.
P.s. EMs like India if cut rates would hint that they are cutting rates coz growth is slowing down coz if growth was exceptional in 7-8% range as forecasted by many then why would you cut rates. We expect this vol up mkt down to playout by March Fomc but from where that turn takes place is anyone’s guess. It could be tomorrow, Jan 11, Jan OPEX, Jan VIXEX, Jan 29 or maybe Feb OPEX.