High-speed traders pile into big short on volatility in India
Jane Street Group, many trading firms are employing a relatively simple strategy: short volatility.
The trade, or variations of it, revolves around a bet that Indian stock indices will move within relatively small ranges, according to five participants familiar with the strategy, who asked not to be identified discussing private information. Significant amounts of capital are deployed to scale the derivatives bets in the world’s largest market by number of options contracts traded, the people said.
While the high-speed traders sell options, long-only funds and retail investors buy contracts to make speculative bets or protect themselves against sudden market drops and are often on the other side of the trade, the people said.
There is no indication that Jane Street’s billion-dollar strategy, which it has been ordered to detail to a US District Judge by May 23, employed any of these trades. An external spokesperson for Jane Street declined to comment.
The wager has been lucrative so far as India’s rising wealth and a shift by global asset managers away from China has steadily lifted the South Asian nation’s equities. The country’s stock benchmark has moved 2% or more in only nine out of the previous 500 trading sessions, data compiled by Bloomberg shows. Still, the strategies can be risky, leaving firms open to massive losses in the event of sudden, large moves.
India’s options market entered the spotlight last month after Jane Street filed a lawsuit against two former employees alleging they took a secret
