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Alternative Market Briefing

Global Sigma captures February's long-vol trade

Tuesday, February 20, 2018

Bailey McCann, Opalesque New York for New Managers:

Florida-based Global Sigma rode February's volatility to new highs. The firm's AGSF strategy is up +2.8 percent through February 16 and +4.2 percent YTD and its Vol/Arb program is up +14 percent through February 16 and 19.6 percent YTD.

Global Sigma CIO Hanming Rao tells Opalesque that he opted to go long-volatility in the second half of 2017 and maintained his positioning through the start of the year. That bet paid off earlier this month when the VIX hit new highs. "We expect that VIX will revert to more historical ranges - mid-teens to 20s over the remainder of the year," Rao says.

Global Sigma runs high turnover strategies that trade weekly expiry options. The firm's AGSF program has typically been short-volatility, but as VIX hit new lows and stayed there in 2017, Rao felt the index was likely to revert to its historical mean in the near term and opted to adjust the portfolio's position. Global Sigma's models generate one-day forecasts designed to help the investment team identify mispriced options. In the second quarter of last year, the team added a long VIX tail risk hedging model into its forecasts. With the addition of this model, the portfolio transitioned to a net long volatility/vega exposure.

The Vol/Arb strategy uses the same one-day forecast model to take a view on the VIX. The strategy l......................

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