Odd Lots
Watch Out, There’s a New Short Volatility ‘Gone Too Far’ Trade In Town
Dispersion trades are bringing back memories of Volmageddon.
A monitor displays the S&P 500 index crossing 5000 on the floor of the New York Stock Exchange (NYSE) in New York, US, on Friday, Feb. 9, 2024.
Photographer: Michael Nagle/BloombergThis article is for subscribers only.
It’s February, and that means traders’ minds have turned to love, bonuses, the Superbowl, and the anniversary of Volmageddon.
But six years after the infamous winter blowup in the volatility market helped roil the wider S&P 500, some traders are warning that a new way of betting against ‘vol’ is setting up an eerily familiar scenario. At issue is a trade in which investors use equity options to bet on the relative volatility between single stocks and stock indexes.