Fund manager bets millions that traders are about to get whipsawed by volatility

Posted by jbrumley on September 14, 2017 8:46 PM

‘The more you deny the truth, the more the truth will find you through volatility’

By Shawn Langlois, MarketWatch

That is what Artemis Capital’s Christopher Cole had to say to the New York Times in an interview published this week that focused on why he’s betting big that a spike in volatility is on the verge of rattling the stock market.

“Volatility is an instrument of truth,” he added. “And the more you deny the truth, the more the truth will find you through volatility.”

Betting against volatility, of course, has been an incredibly profitable strategy lately, with the market steadily knocking out record highs regardless of whatever unsettling headline pops up. The VIX VIX, -0.57% which gauges volatility in the S&P 500 index SPX, -0.11% is hovering around multidecade lows.

But Cole says he spotted something last week that suggests the euphoria in complacency might be finally be coming to an end.

“Optically, volatility is still very low, but fear is increasing,” he told the Times, pointing to a chart that he said shows investors are looking for some violent swings to soon hit the stock market.

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“The fact that everyone has been incentivized to be short volatility has set up this reflexive stability—a false peace,” Cole explained. “But if we have some sort of shock to the system, all these self-reflexive elements reverse in the other direction and become destabilizing as opposed to stabilizing.”

Cole is ramping up his bearish bets a month ahead of the 30th anniversary of Black Monday, when the S&P 500 dropped by 20%.

He stands to make a pretty penny if a similar retreat is in the making. On the flip side, there’d be carnage for those who have gotten fat betting against volatility. Cole told the Times he believes there is some $1.5 trillion on the other side of his bet.

From MarketWatch

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