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By Opalesque Geneva: Justin McEntee, partner at Los Angeles-based Logica Capital Advisers, a $525m manager specialising in long volatility strategies, has been receiving a lot of email inquiries since the tariffs announcement. In a note seen by Opalesque, he reassures investors that all three Logica strategies have performed as expected.
His hedging approach consists of: 100% gross long volatility, at-the-money options, only puts on the S&P 500 Index, and front-month puts (for high sensitivity and reactivity).
A "wall" of volatility sellers
During the recent market sell-off triggered by Trump's unexpectedly severe tariffs, the manager observed notable dynamics in volatility that provide insight into both current conditions and potential future opportunities, he notes. "As we are long volatility, a spike in implied volatility (IV) typically benefits us. However, recent spikes in volatility have been less pronounced compared to historical outcomes. Specifically, a 4.8% decline in the S&P 500 would typically drive the VIX (volatility index) significantly higher (as a 4.8% move in a single day implies an annualized volatility of 76%!), yet the VIX has remained stubbornly resistant to breaking above the 30 level."
This resistance is notable, as the volatility spike on Thursday, April 3, did not even exceed the mid-March VIX highs seen on March 10th and 11th, despite the S&P 500 reaching new l...................... To view our full article Click here
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