“This month witnessed unusual options activity in the Tech sector during the U.S stock market’s rally creating a short squeeze on the upside that spread to the entire market. Since April, a big institution (most likely SoftBank) bought billions worth of calls – in turn, stressing market participants upside risk slides and pushing them to seek protection by buying the underlying asset (Tech companies, S&P 500, Nasdaq). This led to a reduction in their short-implied volatility by buying options and VIX futures. The direct consequence: a decorrelation between the VIX index and the S&P 500 index.
The uncertainty over the U.S elections and a looming second wave of COVID-19 infections combined with this unusual options activity lead to one of the longest episodes of high risk-premia for the VIX leaving very few trading opportunities. The portfolio lost -3.86%, where -2.73% can be attributed to the overlay strategies. In particular, decorrelation effects between the S&P 500 and VIX Index contributed to the negative performance.” Commenting on the performance, Michael Zeller, CIO
Quantumrock VSOP YTD Performance, as of September 30, 2020
About the Volatility Special Opportunities Program (VSOP)
VSOP entails a systematic multi-strategy approach in the S&P 500 index volatility market with a real-money track record dating back to July 2016. The program is composed of a Balanced Portfolio consisting of S&P 500 futures and treasuries with a duration risk of circa five years. It also trades overlay strategies on situational volatility patterns. In total the portfolio shows a lower risk profile than the S&P 500, hence VIX long strategies reduce the beta to the S&P 500 by hedging the tail risk.
Quantumrock is an AI-driven investment technology asset manager working to disrupt traditional asset management. Founded in 2012, our aim was to develop a systematic scientific investment process to generate sustainable risk adjusted returns for our proprietary trading activities. Now experts in machine learning and artificial intelligence methodologies, our clients turn to us to provide them with a competitive edge in today’s market.