With stocks soaring, now that the “Brainard” risk factor has been fully unwound after the Fed governor’s surprisingly dovish speech which has essentially killed any probability of a September rate hike and unleashing today’s “Violent Rally In Risk”  as predicted earlier, one would expect that there is only smooth sailing not only until the September 21 FOMC meeting, leaving only the post-election December 13-14 Fed meeting potentially in play.

Still, at least according to one advisor, GS Banque’s Loic Schmid, it is prudent to keep some volatility protection on after the recent risk-off episode. As a reminder, in mid-July Schmid suggested buying the VIX, a trade that has been profitable ahead of the Friday surge…

… and while he says that he is taking profits on half the position, he is also keeping the other half on for the following reasons:

One key risk factor Loic forgot, the one which most directly catalyzed the recent sell-off, is how and when the BOJ will pursue the steepening of its bond curve. With the 10Y JGB now parked precariously on the unchanged line, nothing has been resolved as far as the Japanese market is concerned, where as we reported before, Kuroda and Abe are now seeking a way to push up longer yields to provide some comfort to long-suffering pension funds and banks, desperately seeking some Net Interest Margin. It is this “inverse twist” that is now the biggest risk facing Japanese, and by implication – thanks to record high cross-asset correlation – global risk prices.