Market Volatility Has Gone Through the Roof. Here’s Why That Matters

A popular investment strategy for riding the unusual recent calm of global stock markets is suddenly in tatters. It’s called short volatility, and since around 2015 has been something of a one-way bet thanks to the orderly rise of global equities. That’s all changed following Monday’s rout, putting at risk an estimated $2 trillion tied to the strategy and stoking concerns of wider repercussions.

A strategy of betting against turbulence in equity markets. Because there’s been very little for more than two years, investors taking such bets have earned handsome returns. And funds that have followed the strategy have attracted massive inflows. The two largest exchange-traded products that wager on low volatility took in $1.7 billion in January, a record.