[ M A R K E T
(ETN) by Velocity Shares would
have netted some 118% in the last
year. It is a contrast to going long
volatility in expectation of it rising.
The Barclay’s Bank VXX—one of
the most popular long VIX ETNs
R E V I E W
|
V O L AT I L I T Y
motivators for trading. VIX index
levels spiked 44% to close on 16.04
on August 10 when the potential
for a US and North Korea con-
flict blew up with threats of “fire
and fury” and possible missiles
“While buying protection is relatively cheap
from a historical point of view, you don’t get it
for free.”
STEFAN RONDORF, SENIOR INVESTMENT
STRATEGIST, ALLIANZ GLOBAL INVESTORS
in the market—has dropped 67% in
the last year and some 99% since
inception.
But while volatility has bounced
along at historical lows a conflu-
ence of factors has revived fears
the market could turn in the third
quarter. Indeed, it is the fear of
heightened volatility that appears
to be one of the most urgent
being launched in the Pacific. And
the jump in derivatives trading
volumes were even more striking.
The day saw 939,000 VIX futures
traded—trouncing the previous
record of 791,000 in 2014.
The fear of rising volatility has
prompted unusual trades in the
market. In the last few months talk
has focused on an investor dubbed
T R A D I N G ]
“50 Cent.” The investor has bought
50,000 VIX call options worth
around 50 cents on an almost daily
basis on the premise that volatility
will spike at some point. The fact
that this has not happened in any
grand scale is thought to have cost
50 Cent some $75 million so far,
according to analysts. Yet, despite
the returning fear in the market,
getting perfect exposure to the VIX
remains a tricky challenge.
Harvest Volatility Management,
one of the larger pure volatility
funds in the market, has been a
seller of volatility this year—but
not using VIX options or futures.
According to Rick Selvala, chief
executive of Harvest which has
around $9 billion in assets under
management, the VIX is not the
optimum benchmark for trading
volatility.
“The VIX is low but it is not
necessarily cheap,” says Selvala.
Issue 53
TheTradeNews.com
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