Another Volatility Hedge Fund

In an attempt to profit from the recent increases in volatility, an ex-Merrill Lynch trader is planning to start a volatility hedge fund (see Bloomberg article). The fund will try to profit by buying and selling option contracts linked to currencies, commodities, and global equities. Year-to-date, volatility funds are up 7.3 percent (see previous post), allowing them to outperforming other hedge funds. The trend in offering such funds seems to be increasing given that earlier this month CQS launched a Global Volatility Fund (see previous post), and other new funds are also raising capital. The new proposed funds are also coming at a time when the VIX has recently rose to its highest value since 2002. Could this be a contrarian signal, indicating lower volatility going forward? Possibly, but given new regulations and changing market rules, it is likely that volatility levels will be elevated for the foreseeable future.