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Alternative investments strategy: High volatility tempts investors

Up to now interest in volatility as an asset class or strategy has been limited.

Volatility is at an all-time high and managers and investors are both beginning to realize the opportunities to be had. Volatility is the highest in the US since 1932. On November 20 the Vix, which measures the volatility of the S&P 500, hit an all-time high, closing at 80.86. A spokeswoman for the Chicago Board Options Exchange said that "normal volatility" was annualized at around 17 to 20. In September, October and November of 2008, the Vix has been between 50 and 80.

Up to now interest in volatility as an asset class or strategy has been limited. Sol Waksman, founder and president of Barclayhedge Indices, says that volatility trading has been mainly found in managed futures selling option premiums. "There are not many of those and there are even fewer hedge funds in the space," says Waksman. As such, the amount of volatility funds and their aggregate performance is a little vague. HFR categorizes volatility funds within its relative value index, which was down more than 15% as of the end of October but volatility traders say that the category is not indicative of volatility trading as it is probably only a small part of the overall category.

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