“Selling volatility” is the latest, greatest phase of the “chasing yield” disaster-in-the-making. Specifically, investors are selling record amounts of put options – driving volatility to near-record lows – in order to generate additional income in a NIRP/ZIRP world. That will likely lead to a massive market blow up, or so say analysts at Bank of America Merrill Lynch. Or in analyst-speak (as quoted by Bloomberg here): “Crowded short positioning across the volatilities of numerous assets worries us as we believe the next shock will likely lead to a volatility spike that is exacerbated by elevated cross-asset correlations.”
