Why ‘shorting volatility’ is now in trend, and what it really means

SINGAPORE (Aug 3): As investors allocate their portfolios on hopes of continued global economic expansion, it seems the entire world is shorting volatility, says David F. Lafferty, Natixis senior vice president, chief market strategist.

In Natixis’ capital market note for July, Lafferty explains how super-low volatility in global markets have spurred a new sub-industry in shorting volatility with myriad exchange-traded funds (ETFs), inverse ETFs, and derivative products that usually have a ‘V’ in their tickers.

“During this period of low volatility, shorting volatility through VIX has become incredibly profitable. To the casual observer this may seem odd: Shorting an investment profitably requires borrowing and selling the asset now while later repurchasing it at a lower price,” says the strategist.

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