He ended our discussion with a useful analogy: "The VIX tells us when large hedge funds are loading up on portfolio insurance. This is no different than the hurricane insurance market.

"Hurricane season in the Atlantic begins June 1 and ends Nov. 30. Insurance companies experience marked increases in demand for hurricane insurance in May as property managers and homeowner scramble for cover. The increased buying pressure drives up hurricane insurance premiums."

Disclosure :At the time of publication, Marc Courtenay did not hold any positions in the securities cited in this article.

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