Hedge funds are betting heavily that calm will persist in US equities, with short positions in Cboe Volatility Index (VIX) futures climbing to levels not seen in nearly three years, according to a report by Bloomberg.

CFTC data shows large speculators were net short about 92,800 VIX futures contracts in the week to 19 August – the most since September 2022. The move comes as the VIX trades below 15, near its lowest levels this year, after US stocks rallied on comments from Federal Reserve Chair Jerome Powell.

Derivatives strategists caution that stretched positioning could leave traders exposed if volatility unexpectedly spikes, with extreme shorting of volatility having previously preceded market disruptions. Hedge funds were forced to unwind similar trades in February when trade-war fears rattled equities, and again in mid-2024 ahead of the yen carry trade unwind that sparked a global selloff last August.