Investors piled into volatility bets before market tumble

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NEW YORK: Fears of a coronavirus-fueled slowdown have injected volatility back into markets, but some investors may be less exposed this time around.

The Cboe Volatility Index , known as Wall Street's fear gauge, jumped on Tuesday to a near 14-month high of 26.71. It recently traded at 25.71. Wall Street extended its losses on Tuesday, with the S&P 500 on pace to shed about 5per cent over three sessions.A jump of that magnitude can hurt investors who had bet that markets would remain calm. But such wagers have dwindled lately, while investors have been more eager to pick up insurance against sharp market swings.

Even before the latest selloff started, assets at VXX jumped by 35per cent, compared with a year ago, while those at TVIX rose by 22per cent, YCharts data showed.By contrast, the largest short volatility ETP, the ProShares Short VIX Short-Term Futures ETF , had assets of about US$238 million, down 45per cent from a year ago.

That changed when a sudden drop in the U.S. stock market in February 2018 wiped out most of the value of these ETPs and led to the collapse of some products, including the VelocityShares Daily Inverse VIX Short Term ETN.

 

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