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From the Opalesque team: Alphabet Partners, LP returned +3.26% in Q3 2010. This brings the Fund’s return through September 2010 to +14.81% YTD and net return since inception (10/07) to +86.03%.

The fund’s estimated return of 5.5% for October brings its YTD return to 21.12% and return since inception to 96.26%, said David W. Rhudy, Director at New York-based Alphabet Management, LLC, in an email communication yesterday.

According to the fund’s Q3 report, following the second quarter selloff, equity markets rallied significantly in the third quarter. The S&P index rose 11.08% driven by a number of statements from central banks around the world indicating probable future rounds of quantitative easing to stem deflationary pressures and further weaken currencies. The currency devaluation race certainly had a positive effect on equity markets as the value of equities became cheap in light of rising commodity prices and low yields on bonds.

The September equity rally had a unique effect on volatility levels.

The level of volatility in options is normally inversely correlated to the direction of the market. As a general rule, as equity markets rally the implied volatility of options decrease. While spot VIX decreased slightly in September from 26.05 to 23.70, the term structure of VIX futures changed as the implied volatility surface steepened. As of month-end September, front-month VIX futures dropped to the low 20’s while the five-month VIX futures trade......................

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