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Man FRM Early View

February 2018



The unprecedented and eerie calm of the last two years was finally shattered in February by the sound of breaking glass in the volatility market. Of course, no one could really predict exactly when it was going to happen, but the market always tends to chase carry trades. As returns are eroded by the weight of capital, investors lever up their exposure until the carry is squeezed dry, and then some bright spark tries to get out. Historically it is at this point that it all gets ugly.

With the help of a nudge from the inflation data at the beginning of February, the Vix market acted out the narrative. The last of the carry disappeared at the end of January and the rest is history. Even the size of the move was unexceptional: the intra-day range of the Vix on the first Monday of February was similar to, for example, August 24, 2015. It was only if you measure the move on a close to close basis, that the move in February looks unusually large by historical standards. In other words, while you could complain about bad luck with the valuation level (at the day’s highs)… that’s about it in our view.

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About The Hedge Fund Journal

Informing the Hedge Fund Community. With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.