Short sellers bet on calm in US equities
As the S&P 500 nears its record high, traders are taking speculative positions on listed notes which will bear fruit if market volatility drops
Volatility in equity markets in the United States is near a record low and traders have loaded up on bets it has further to fall.
There are about 19 million shares of the iPath S&P 500 VIX Short-Term Futures ETN that have been borrowed and sold to speculation on declines, almost three times the level from early June, according to data compiled by Markit.
Volatility is disappearing from the equity market again as the Standard & Poor's 500 Index trades near a record high, bolstered by some easing in geopolitical tensions and speculation that the Federal Reserve will continue to support economic growth in the US.
As of Monday, the VIX had fallen in 10 of the previous 11 days, a sign of confidence in the bull market as investors resist paying up for insurance against future equity losses.
"It's pretty amazing how quickly volatility has washed out of the market," said Dan Deming, a managing director at Equity Armor Investments. "Over time, being short volatility has been a winner, but it seems like that's been a pretty crowded trade these days."
The iPath ETN, often known by its ticker VXX, has become one of the most-traded US securities as strategies based on volatility exploded in popularity. A daily average of 42.8 million shares changed hands over the past month, third only to the SPDR S&P 500 ETF Trust and iShares MSCI Emerging Markets exchange-traded funds.
