Hedges Dipping Back Into the Short-Volatility Trade at a Rate Never Seen Before

As increasing optimism on the trade front intensifies – after all, equities continue printing all-time highs – markets are getting another dose of good news. Bloomberg reports that the VIX has hit record levels with the fast money, mostly hedge funds, shorting it at rates never seen before.

The publication notes that hedges are upping wagers against volatility even as some Wall Street strategists continue to raise questions about illiquidity and the stock market’s ability to sustain its historic bull run. In fact, in a clear sign of betting on a continued stock rally well beyond current highs, weekly data from the Commodity Futures Trading Commission (CFTC) showed investment groups net shorted about 178,000 VIX futures contracts on April 23, the highest on record.

It’s worth noting that the widely used real-time market index, which measures options activity of the S&P 500, is down 14% year-over-year. This means when VIX drops, stocks rise and vice versa.

On Friday, the VIX ended the day at 12.73, down a whopping 45% since January 3, and more than 30% below the gauge’s average over the last 20 years.

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