Hedge funds rev up short-vol trade in zero-day options
Firms are capping exposures to avoid a rerun of 2018’s ‘Volmageddon’ unwind
Hedge funds are once more gunning their engines on the short-volatility trade – this time in zero-day options (0DTEs) – and with a downside limit.
The strategy has led to outsize losses in longer-dated instruments in the past – notably during the so-called Volmageddon crisis of 2018, sparked by an industry-wide unwind of short-vol exposure.
But this time, funds are adding caps to limit potential
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