​Mid-Week Roundup – Targeted Vol Funds; S&P's Autocallable Disease

Targeted vol funds are making equity trading over fundamentals harder, as they seek to load up on long positions as volatility in the asset class decreases. This is making some more traditional equity trading techniques, such as watching the release of economic data, harder to execute. We also take a closer look at the distorting impacts the Korean autocallable market is having on the most used underlyings’ volatility profile. While the problems have been noted in the HSCEI, pundits are worried the same issues could be seen in the S&P 500 as the index becomes more popular. Back in the U.S., some market watchers are warning of a potential localized tail risk event, suggesting investors should look at buying short-dated up-and-out calls on broad-based U.S. benchmarks in a bid to benefit from the current rally in U.S. stocks, while adding some protection to the downside. In divs, macro funds and pension funds are increasingly looking to profit from the discounted level of the S&P 500 2016 dividend contract by either going long the contract or by entering structures that go long 2016 dividends and short a basket of stock divs.