(Bloomberg) -- A once-niche stock trade beloved by hedge funds and volatility players has ballooned into one of the biggest options strategies on Wall Street...
-- A once-niche stock trade beloved by hedge funds and volatility players has ballooned into one of the biggest options strategies on Wall Street, stirring fears it will get crushed by its own popularity.Known as dispersion, it’s traditionally been the preserve of bank trading desks and fast-money players like Capstone Investment Advisors and One River Asset Management. But it’s been luring new cash in the post-pandemic era as a market riven by rising interest rates has boosted performance.
Stephen Crewe at Fulcrum Asset Management, who has been trading dispersion for two decades, says he’s now fielding questions about whether it’s too late to get in. That’s coincided with a period of falling index volatility. The Cboe Volatility Index, a gauge tracking the cost of S&P 500 options known as the VIX, hit a fresh five-year low Thursday — a telltale sign of weak hedging demand. Some analysts say the self-fulfilling feedback loop of option-selling strategies, including dispersion, contributes to the calm.
Unlike the mega-caps of yore like General Electric Co. or Procter & Gamble Co., American blue-chips these days regularly offer investors a roller-coaster ride. The likes of Nvidia, Tesla and Meta Platforms Inc. have each posted one-day moves of at least 10% over recent months, handing dispersion strategies the volatility they crave.
Options Strategies Dispersion Trade Capstone Investment Advisors Volatility
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