Besides some individual standouts in the Multi- Strategy and Discretionary categories, the Volatility trading sector were the rock stars of 2016. This space is growing each year, and becoming more diverse in the process.
Where we used to see a steady diet of vanilla option selling here a space has added new strategies incorporating VIX futures, with what once was a purely short volatility space rapidly becoming more and more of a volatility trading space, able to profit from either increases or decreases in volatility.
For more on how this sort of trading works (buying and selling the fear gauge futures), we outline it all here and here. The short version is that each Volatility manager tends to approach the VIX from a market structure standpoint – trying to capitalize on its unique tendencies of being a “quadrative” of sorts, (a derivative of an index of a derivative of an index) where arbitrage opportunities can exist when one of the four components of that “quadrative’ doesn’t keep pace with the other legs.