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Alternative Market Briefing

For volatility funds, the current markets offer chance to pitch the portfolio hedge that few focus on in stable times
Thursday, February 12, 2009

From Kirsten Bischoff, Opalesque New York: In market cycles there is always some comfort in the historical reassurance that eventually things will stabilize. When that happens, the hope for volatility traders is that investors will remember the asset class’ performance during these dire times and resolve to maintain this hedge within their portfolios.

The time between 2002 and 2006 was an environment of very low volatility. Of those volatility funds that did exist, many were forced to close down after losing assets through both performance and redemptions.

“In the past, volatility was not recognized as an asset class or strategy type, so end users of hedge funds didn’t know much about volatility trading strategies,” Paul Britton, CEO of volatility trading firm Capstone Holdings Group told Opalesque.

New York-based Capstone Holdings Group, which began as a proprietary trading group, seized opportunities to expand into multiple businesses in 2007, just as public awareness was beginning to focus on things such as market volatility and volatility gauges like the CBOE’s Volatility Index (VIX).

“The surge in volatility began in September of last year and most would point to the fall of Lehman Brothers as the catalyst for the increase in the volatility.” Dean Curnutt, President of derivatives strategy and transaction execution firm Macro Risk Advisors said.

Curnutt’s firm works with managers who use ......................

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