The Booming Short-Volatility Bet That Lost 46% in a Single Month
- Barclays says shorting S&P 500 variance fell apart in March
- Trade thrived as banks unloaded risk to hedge funds, managers
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A booming but opaque volatility trade beloved by hedge funds just erased two decades of performance in a single month.
Betting against price swings in the S&P 500 Index via an over-the-counter instrument known as a variance swap returned minus 46% in the month through March 20, according to Barclays Plc. While perennially popular, the trade has ballooned in recent years as banks unloaded their volatility exposure to hedge funds and other asset managers hungry for yield.