Volatility Is Traded Now More Than Ever

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Volatility

This fund run by a SAC Capital alum bought restaurant stocks amid the pandemic

restaurantPrentice Capital Management was up 6.6% for the first four months of the year, compared to the S&P 500's 9.3% decline and the Russell 2000's 21.1% decline. The HFRX Equity Hedge Index was down 9.4% for the quarter. Q1 2020 hedge fund letters, conferences and more Gross and net exposures In his first-quarter letter to […]

Another day, another crisis, another short term pop in the VIX. Both “major” moves this month have come from news about North Korea. Just two weeks ago, we questioned which crisis would be different from the rest; to cause long term volatility in the markets. The early August VIX pop reverted back to its typical 2017 range, but the VIX did experience new highs when it came to the open interest. Here’s Matt Moran of the CBOE.

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Despite the fact that the average daily closing value of the CBOE Volatility Index® (VIX®) is about 11.5 so far this year, VIX futures and options both had record days for volume and for open interest this month.

OPEN INTEREST RECORDS. VIX futures hit a new record for open interest with more than 673,000 contracts on August 7, and VIX options reached a new record for open interest with 14,783,380 contracts open on August 15.

When you first think about it, there’s something odd about having consistently calm markets paired with charts showing open interest growing to new all-time highs. It’s easy to assume that the more trading that happens in a market, the more likely the price is to move. Sure, there’s been multiple spikes in the VIX markets, but overall the price has remained consistently low. Why aren’t we seeing more movement with the rise in trading? Is the tail wagging the dog? Or is this consistent uptick in trading from guys like this who turned $500,000 into $12 Million shorting the VIX in five years? To learn more about VIX Futures and Options, and from professional traders utilizing these markets, download our fundamental report to help investors understand the VIX.

Article by RCM Alternatives