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Alternative Market Briefing

VelocityCapital Management launches VIX futures based tail risk strategy

Tuesday, June 05, 2012

amb
Nick Cherney
Bailey McCann, Opalesque, New York:

In the wake of the 2008 crash, persistently high levels of market volatility and the Eurozone crisis investors have come to realize that diversification alone is not always sufficient to avoid the effects of black swan events or tail risk. A variety of funds offer tail risk hedges and some, as Opalesque reported last week are available to retail investors.

Connecticut-based VelocityShares recently launched a new tail-risk hedge product to investors through a new entity VelocityCapital Management. VelocityShares principals recognized the profitability of volatility specifically through the CBOE Volatility Index (the VIX) during crashes in developing their existing volatility products. The new entity comes out of the firms work providing VIX based volatility exchange traded products to institutional investors.

"We spent a lot of time educating institutional investors on tail risk hedging solutions, it was through this process and speaking with many clients that would prefer not to manage daily trading that led directly to the new entity," says Nick Cherney, Chief Investment Officer, VelocityShares, in an interview with Opalesque.

Similar products are offered by other firms although the hedge comes with a fairly high embedded cost an......................

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