Exotic FX derivatives bets in play as US election vol jumps
Forward volatility agreements see profits for funds; new trades include vol knockouts
Hedge funds that used exotic foreign exchange derivatives to buy cheap forward exposure to volatility around the US presidential election are beginning to rack up profits, as vol rises into next week’s poll.
Earlier in the year, a number of funds entered forward volatility agreements (FVAs) – an agreement to buy or sell a vanilla FX option, typically a straddle, at a predetermined strike price at some point in the future.
The broad idea behind the trades is to access a specific segment of the
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