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Alternative Market Briefing

Hedge funds raise volatility bets

Thursday, September 17, 2015

Komfie Manalo, Opalesque Asia:

Hedge fund bets on stock market volatility have reached record levels, reported The Journal.

Schaeffer’s Investment Research has studied data from the U.S. Commodity Futures Trading Commission since 2005, and found that hedge funds and other speculative investors’ bets that futures tied to the CBOE Volatility Index will further rise exceeded the number of bets on a falling VIX by 37,925 contracts as of Sept. 8.

The VIX, the market’s "fear gauge," is based on S&P 500 options prices. It tends to rise as stock prices fall. A bullish bet on VIX futures means investors are rushing for protection against market downtrends.

The report quoted Ramon Verastegui, head of flow strategy and solutions for the Americas at Société Générale as saying that hedge funds are "getting much more cautious," with the recent developments in the global markets. "They’re moving from 'risk on’ to 'risk off,’" he said.

As the market has risen over the past five years, the CBOE Volatility Index has averaged a reading of 17.5, which is below its classical average of 20, reports CNBC. The VIX may have fallen over the past week, but it spent its 18th straight session above the 20 mark on Wednesday. That's the longes......................

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