Hedge Funds Bet on 'Volatility Trading' as Triple Shock from AI, Oil Prices, and US Treasuries Ignites Divergence in US Stocks

BlockBeats news, September 27 - According to Bloomberg, the battle between winners and losers in the AI industry, sharp fluctuations in energy stocks triggered by the situations in Iran and Ukraine, and rising US Treasury yields are driving further divergence in individual US stock movements, causing hedge funds to refocus on the "volatility dispersion trading" strategy.

This strategy typically involves buying individual stock options and selling S&P 500 index options, betting on increased volatility differences among constituent stocks while hedging overall market volatility. As AI's impact on industries such as software, banking, and tourism becomes increasingly divergent, and stock price movements of energy producers and refiners diverge, trading opportunities have increased.

Nomura data shows that the degree of divergence in one-month actual absolute returns of S&P 500 constituent stocks relative to the index has risen to the 95th percentile of the past 30 years. Meanwhile, since the end of July, implied volatility of individual stocks has retreated, reducing the entry cost of related strategies.

However, this strategy has been popular for many years, and there are concerns in the market about overcrowded trading. Kris Sidial, co-chief investment officer of hedge fund Ambrus Group, believes that this trade may face risks of concentrated liquidation. As the earnings season approaches, the impact of AI on corporate profits and industry landscape remains highly uncertain, and individual stock movements may further diverge, but some companies highly exposed to AI risks may also experience significant declines.