Hedge Fund Beatdown Taking Place In VIX Futures

by: Movement Capital


Bonds: Hedge funds have been profitably long the 30-year, institutions are bullish on the 2-year.

Commodities: Money managers have aggressively bought corn, cotton, and sugar.

Currencies: Hedge funds have reduced long exposure to the Euro and Australian dollar.

Stocks: Institutions are extremely bullish on the Dow, less so on the S&P. Hedge funds have recently been crushed with their big short in VIX futures.

In a previous article, I outlined my approach for analyzing CoT data to reveal how different types of traders are positioned in the futures markets. If you missed it, give the article a read to see the method behind my analysis.

This is the 12th in a series of weekly updates that outlines how traders are positioned, and how that positioning has recently changed. I break down the updates by asset class, so let's get started.


Yields have fallen for the long end of the Treasury complex in 2016. Since January 1, the 30-year has gone from 2.98% to 2.43%. Who has made money off of this? Hedge funds, with their huge net long position in the 30-year bond contract (NYSEARCA:TLT). Can the collapse in yields continue? Who knows. There's still a significant spread between long U.S. rates and European/Japanese rates. On the other hand, if inflation expectations start to kick up expect to see a pull-back in the 30-year rally.

Institutional investors are loaded up on the short end of the curve, with a large net long position in the 2-year (NYSEARCA:SHY).


Money managers have been aggressively shorting copper (NYSEARCA:JJC).

On the flip side, they've been adding to longs in corn (NYSEARCA:CORN), cotton (NYSEARCA:BAL), and sugar (NYSEARCA:SGG).

Money managers are especially long sugar. At a 5-year net CoT position percentile of 100%, they've never been this net long over the past five years. Supply concerns out of Brazil have been the main fundamental catalyst behind the price spike in sugar futures. As a reminder, a CoT percentile of 100% is not an indication to go short. Money managers who are long sugar have no reason to sell as long as price keeps on going up. The thing to watch for is a divergence between price action and positioning. If sugar's rally starts to stall, and crowded longs start liquidating at the same time, an abrupt reversal typically follows.

I think it's pretty interesting that both producers & users and money managers have recently gotten bullish on natural gas (NYSEARCA:UNG).

Money managers have been quick to flip out of their crowded long positioning in silver (NYSEARCA:SLV).


Institutions and hedge funds have continued to reduce their long exposure to the Australian dollar (NYSEARCA:FXA).

Hedge funds reduced longs in the Euro (NYSEARCA:FXE) contract. Institutional investors are still very long.


Positioning within stock futures continues to mystify me. In the S&P (NYSEARCA:SPY), hedge funds rapidly got short last week.

Yet institutions are more net long the Dow (NYSEARCA:DIA) than they've ever been in the past five years.

Finally, hedge funds have been absolutely crushed over the past few days with their big net short position in VIX futures (NYSEARCA:VXX). Spot VIX has ripped more than 40% since the start of June.

If you've got any questions about CoT data, don't hesitate to ask me in the comments below.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here