Hedge Funds Are Shorting the VIX at a Rate Never Seen Before
CFTC data has shown a record net position betting on the calm of the market and is that hedge funds are shortening the VIX at a rate never seen before. In this way, strategists have advised investors not to worry.
It should be noted that while stocks rise to historical highs, volatility practically disappears. In this way, the hedge funds are betting that the calm will last, shortening the Volatility Index of Cboe, or VIX, at rates that have not been seen in at least 15 years.
On the other hand, the large speculators, mostly hedge funds, were net of around 178,000 VIX futures contracts on April 23, the largest position of this type recorded, according to the CFTC weekly data that date back to 2004.
Evidence of complacency
It is necessary to emphasize that it has usually been known as the fear indicator of the stock market. However, aggressive bets against the VIX are, according to your world view, evidence of trust or complacency.
In this way, strategists have recently been rejecting the idea that a large amount of useful information is visible in the VIX positioning data. Thus, the CFTC data do not take into account the positioning observed in the products traded on the stock exchange, which is remarkably long volatility, or the type of traders that have a mix of long and short values as a hedging strategy or relative value.
As such, the VIX rose this week, but still remains below 13, more than 30 percent below the average of the indicator in the last 20 years. While the VIX advanced a bit more, so did the stock, the S & P 500 rose to a new record.
Source: Sarah Ponczek | Bloomberg