Vol funds enter OTM calls on forward variance swaps

By Daniel O'Leary
26 Aug 2014

Volatility arbitrage hedge funds were seen last week buying far out-the-money November 2014 and March 2015 calls on realized S&P 500 forward variance swaps.

An equity derivative structurer in New York noted the funds had traded between $500,000 and $1 million of vega and about $500mn notional last week. He said the calls were typically structured with strikes of about 150% of spot. “Basically, what you’re doing is buying a tail risk ...

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