From The Trade, September 1:
A recent Acuiti report found that 75% of prop trading firms surveyed saw volatility trading strategies out-perform other markets in 2022.
Following a recent period of high volatility, strategies have begun to alter accordingly and market onlookers continue to predict a growth in volatility trading as the market increasingly turns its attention to the area.
A recent report from Acuiti published in July confirmed that volatility trading is gearing up for significant growth, with the sector “moving from a niche asset class to a core strategy for many firms seeking to diversify their strategies”.Of the surveyed prop trading firms, 75% confirmed that they had seen volatility trading strategies out-perform other markets in 2022.
Acuiti explained that their findings point to firms increasingly looking to capitalise on the more frequently occurring spikes in volatility.
Speaking to The TRADE about this correlation between less predictable markets and a move towards volatility trading, Arik Reiss, former co-head of global equity derivatives research at Bank of America Merrill Lynch, stressed the fact that “volatility trading is more reliable in more variable conditions.”
He elaborated that, though volumes drop, it is in fact during those periods in which the market is more prone to something going wrong – and volatility markets are where it shows up first.
As highlighted in Acuiti’s report – which included responses from senior executives across 94 proprietary trading firms, hedge funds, banks, interdealer brokers, and futures commission merchants (FCM) that serve the derivatives market – 2022 saw a surge in interest in volatility trading from the market.
Of the surveyed respondents, 35% labelled volatility “significantly better” than other strategies, while 33% reported a “slightly better” performance....
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