Check Those Hedges Before Volatility Blows Up Again, SocGen Says
- Another ‘violent’ swing back in short-vol strategies possible
- Investors ‘herding into risky trades’ amid placid environment
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Volatility is set to increase, making this a good time for investors to reassess their hedges, according to Societe Generale SA.
After a blowup in February, traders have piled once again into short-volatility strategies, “increasing the probability of a violent swing back” when the trend reverses, SocGen strategists led by Vincent Cassot wrote in a note. He warns that broad correlation across markets is likely to return in the near term and spur higher volatility.