The short volatility strategy that proved to be a winning formula for many hedge funds through 2013 looks set to be reversed as realised vol slumps to new lows, marking a potential melting point for the trade. One-month realised vol on the S&P 500 is currently trading around 11% while Eurostoxx 50 levels are below 14%. And with analysts upgrading their forecasts for full-year equity performance, those levels are predicted to slump further. Analysts at Credit Suisse estimate that realised vol will end the year at 10.5% for the S&P 500 and 12.5% for the European benchmark. "A lot of traders are asking whether it really makes sense to sell vol at 10.5. Anywhere below that and it makes sense to go long," said Stanislas Bourgois, equity derivatives strategist at Credit Suisse. "No one really wants to go long ahead of the summer, but in September, if we're still where we are now, we'll start to see buyers of volatility again."
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