NEW YORK - Popular funds that sell options for income may be moderating the recent bout of volatility in U.S. stocks, extending the calming effect they have had on the market for the last several months.
The S&P 500 stands near record highs, yet it logged two straight days of 1% swings last week, the first such move in about two months. Options selling strategies come in various forms, including ones that may sell calls, puts or a combination of these, with or without equity holdings. Their diversity makes it difficult to assess the exact market impact they might have on a given day. Taken together, however, they moderate market swings.
Every jump in volatility has been met with a "massive wave of supply of index volatility," Sidial said. The short volatility trade has a checkered track record on Wall Street. In February 2018, a volatility-tracking note called the VelocityShare Daily Inverse VIX Short Term ETN went bust as market volatility surged in an event dubbed “Volmageddon,” which erased nearly $2 billion in investor assets.
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