Yesterday continued the unfavorable regime for the strategy. Tail volatility kept rising despite only a modest move in the underlying market. Because realized movement remained very limited, short-dated gamma was unable to compensate for the negative effect of higher far-tail volatility.
A further negative factor was the expiration of previously purchased hedges, which also had a meaningful impact on the day’s result.
There also remains a gap between the portfolio value observed intraday in the terminal and the official post-clearing broker result. The terminal showed a materially better picture, but for the public track record we continue to use the official post-clearing broker data.
Together, these factors produced a very weak day. The drawdown is significant and clearly disappointing. However, a substantial part of the negative repricing reflects higher tail volatility in an almost unchanged market rather than realized directional movement in the underlying. We will continue to monitor the volatility surface and assess how persistent this regime proves to be.
Editor’s Note reflects the author’s market perspective at the time of publication and should be read as commentary, not investment advice.
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