​Institutions Walk A Line With Short Vol

For those market participants that attended Global EQD in May, it reinforced the notion that short volatility strategies can divide the market straight down the middle. On one side of the debate, naysayers talk of the inherent danger of over-levered short vol strategies, should volatility rise sharply or for a prolonged amount of time. Yea-sayers, meanwhile, admit there might be some risk involved in such strategies, but isn’t taking some level of appropriately managed risk part of the job description? As the short vol train chugs along, and as more and more institutions become participants in the trend, is the market headed for a giant institutional short vol-induced calamity, or will cool heads prevail? Daniel O’Leary reports on the ongoing debate.