A new breed of systematic volatility traders are looking to push the asset class into its next phase, replacing existing strategies that bleed cash when markets are calm with a more dynamic approach that extracts returns even as volatility declines. The Chicago Board Options Exchange's (ⅤⅨ) index has declined by 33% since February as oil prices have steadied, economic data have strengthened slightly, and central banks have continued with accommodative monetary policies. Volatility products such as Barclays' iPath S&P 500 Short-Term Futures exchange-traded note (ⅤⅩⅩ), which lost 30% over the same period, rely on a relatively constant dislocation between the market's expected volatility levels and the actual levels of volatility that occur over time. The strategies arbitrage the difference through options markets to extract returns.
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