Great Opportunity Or Blow Up For Hedge Funds?
What role are hedge funds playing in the market meltdown's aftermath? Three "Power Lunch" guests, who cover the field, weighed in.
Trader Monthly Associate Editor Andrew Barber noted that "anecdotally" he's heard that "premium sellers were punished" by Tuesday's market drop. He said that the sustained low volatility in U.S. equities helped "anyone who was long options" reap big benefits as the VIX (Chicago Board Options Exchange Volatility Index) jumped. "Near term," Barber expects that trend to continue -- but he speaks warily of "a lot of liquidity" still in the market.
Ken Heinz, president at Hedge Fund Research, expects volatility to continue. But he believes that trend "represents a great opportunity" for savvy hedge-fund managers "to distinguish themselves." He told CNBC's Sue Herera that his firm has, in fact, initiated a new index that tracks such fund managers who trade volatility as an asset class.
Roben Farzad, an associate editor at BusinessWeek, said his peers canvassed "traders on the street" who seem to share the view that "something is going to blow up" -- perhaps due to the impact of "tertiary guys" who latch onto big players' tactics for the shorter term. But investors can take heart, Farzad says, as there is "nothing systemic yet." He maintains that much will depend on the yen and Japan's carry trade. (See CNBC's Steve Liesman Lesson On Carry Trade)