Hedging strategies are gaining popularity as investors anticipate a potential rate cut by the Federal Reserve in September, pushing stocks towards record highs. Strategies include protecting gains before key events like Nvidia earnings and the Fed rate decision, with some focusing on S&P 500 put spreads and Euro Stoxx 50 Index put options.

Investors are shifting away from buying calls on the Cboe Volatility Index due to high costs and focusing on more reliable hedges like S&P 500 put spreads. The VIX futures term structure is steep, leading to higher carry costs and potential difficulties in monetizing VIX calls during market volatility spikes.

Flows into VIX exchange-traded products are impacting the VIX futures term structure, with recent inflows into long funds leading to a steepening curve. Leveraged VIX ETPs can amplify market swings, with concerns about the volume of futures for sale during a stock slide. VIX call buyers are cautious after low volatility in late February favored S&P 500 puts.

Ahead of the Fed meeting, investors are closely watching Nvidia earnings, with options suggesting a 5.8% move in shares post-earnings. Nvidia’s performance will have a significant impact on market sentiment due to its weight and influence. One-month volatility is moderate, and decreasing volume indicates cautious investor sentiment.

Read more at Yahoo Finance: Wall Street Favors Vanilla Options Rather Than VIX to Hedge