A Hedge-Fund Volatility Trade Risks Getting Crushed by the Crowd
- Strategy selling index hedges, buying stock options has surged
- Assets in dispersion trade may have tripled in three years
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A once-niche stock trade beloved by hedge funds and volatility players has ballooned into one of the biggest options strategies on Wall Street, stirring fears it will get crushed by its own popularity.
Known as dispersion, it’s traditionally been the preserve of bank trading desks and fast-money players like Capstone Investment Advisors and One River Asset Management. But it’s been luring new cash in the post-pandemic era as a market riven by rising interest rates has boosted performance.