​Weekly: Fund Monetizing SX5E Convexity; Long/Shorts Bidding Upside Calls

We start in Europe this week, where hedge funds are looking to take advantage of the current elevated longer-dated convexity in the Eurostoxx 50. The funds are showing more interest in monetizing convexity to cheapen directional strategies as opposed to outright selling convexity, with many market participants predicting convexity could still gap higher. Meanwhile in the U.S., some long/short hedge funds appear to be bidding up upside calls on the S&P 500, chasing the options higher as they fight months of prolonged poor performance. This has some analysts worried about the increasingly risky positioning building up in the market. Also, fx markets and the USD in particular, seem to be driving equity investor sentiment. Concern over a strengthening USD and the potential knock-on effects to emerging markets and the China onshore yuan is mostly to blame.