A Volatility Trader Explains What Happened

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A Volatility Trader Explains What Happened

Article by RCM Alternatives

What exactly happened last week? Did equities sell off spark a spike in the VIX and blow out the billions of dollars shorting the VIX? Did the over weighted short volatility traders lead to a further sell off in equities? Or is this a standard 10% correction in the markets; something that’s not that uncommon.

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We’re no experts in VIX and volatility trading, but we did ask those that trade millions in VIX Futures to give us some insight. We reached out to Tim Jacobson, manager of the Pearl Capital Advisors -HEDGED VIX (QEP) program, capturing a +30% performance last week to get some answers. Where did Pearl go right, where so many went wrong?

Here is our conversation with Tim:

1) Is VIX spike an example of the tail wagging the dog? How much do you think VIX ETPs blowing up had to do with the moves in equities?

Tim: On the back of the release of the wage inflation data, markets processed the expectation that increased wages