Weekend Economists Mark D Day, 2014 June 6-8, 2014

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21. Hedge Funds Betting on Calm as Volatility Shorts Increase

http://www.bloomberg.com/news/2014-06-06/hedge-funds-betting-on-calm-as-volatility-shorts-increase.html


Hedge funds are betting the stock-market tranquility that’s stifling trading and hurting bank profits will be around for a while.

Large speculators have added bets on lower volatility and were net short almost 82,000 contracts on VIX futures last month, the most since October, according to data from the Commodity Futures Trading Commission. The strategy will be profitable should the Chicago Board Options Exchange Volatility Index (VIX) continue its 15 percent retreat this year.

The flood of economic stimulus from global central banks is helping diminish stock-price swings, encouraging investors to trade less and pushing the VIX within three points of an all-time low. Stocks rallied and the volatility gauge fell yesterday after the European Central Bank became the first major central bank to take one of its main rates negative.

“Volatility can go even lower than it already is,” Max Breier, a senior equity-derivatives trader at BMO Capital Markets Corp. in New York, said by phone. “The Fed is still buying assets and there’s still a lot of money sloshing around the system and the rest of the world is now in an easing cycle.”