Equity vol strategies get defensive

Floored short funding legs and long vega worked in latest US selloff, dealers claim

Entire portfolios have been built on the adage that the world catches a cold when the US sneezes – a family of popular relative value trades allow investors to fund long volatility bets on Asian and European indexes by selling volatility on the S&P 500. But the rule was turned on its head in February’s selloff, leaving investors with an estimated $500 million in losses, and posing an awkward question: what to do when the US is the sickly one?

The answer varies. Some have chosen to limit their

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