Bloomberg news reports that one of the surest bets in the U.S. stock market over the last 2 1/2 years, speculating on tranquility, is being abandoned.
For the first time since 2011, thebalance of futures (VIX) owned by hedge funds and other large speculators on the Chicago Board Options Exchange Volatility Index represents wagers that equity turbulence will increase, according to data compiled by the Commodity Futures Trading Commission. Managers added long holdings after a selloff that sent the Standard & Poor?s 500 Index down as much as 9.8 percent in the 26 days ended Oct. 15.
Expectations for equity price swings reached the highest in about three years this month as the VIXtouched 31.06, more than twice its average level since the start of 2013.
Shorts Challenged
Hedge funds held about 114,000 long positions and 113,000 short ones through Oct. 21, CTFC data show. Given that breakdown, investors would gain $1.7 million with every 1 point increase in the VIX, according to the data.
The short trade was challenged this month as signs of a slowing global economy and concern Ebola will spread erased more than $2 trillion from U.S. equity values between Sept. 18 and Oct. 15.
During the selloff, the VIX closed above 20 for six straight days, the first time that?s happened since June 2012. The volatility caught traders off guard, spurring them to buy back futures to cover short sales and contributing to a spike in the VIX during that time.
You can read more at Bloomberg.com