Hedge fund Gammon positive aspects 600% with well-timed bets on volatility

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Hedge fund Gammon Capital has chalked up a 600 per cent acquire thus far this 12 months, rating it as one of many world’s greatest performers, due to well-timed bets on volatility through the coronavirus-driven market ructions.

The New York-based agency, headed by Michael Mescher, a former Barclays dealer, appropriately wagered on hovering volatility in early March as dangerous property slumped. The agency additionally took choices positions that rose sharply as markets rebounded within the second half of the month.

The returns are available a blended 12 months for hedge funds, which on common are down 0.three per cent this 12 months to the tip of July, based on knowledge group HFR. Some volatility merchants and macro funds have been in a position to journey wild swings to web a few of their greatest returns in years. However others, akin to some longer-term computer-driven funds, have been caught out by rising volatility.

Mr Mescher mentioned his fund had purchased low cost put choices — which provide the best to promote at a sure value — throughout January and February when volatility was low.

However as markets seized up in early March when coronavirus unfold across the globe, market volatility rose quickly, pushing up the value of these choices. Mr Mescher held on to his places and in addition purchased name choices — the best to purchase at a pre-determined value. The calls made cash as markets rebounded in response to a number of dramatic rounds of stimulus from the US Federal Reserve, whereas he bought a few of his places at a revenue in April and Might.

“March was an distinctive surroundings; you don’t get a tonne of these,” mentioned Mr Mescher, who started buying and selling derivatives on the ground of the Chicago Board Choices Change.

Amongst his positions now are longer-dated places on the S&P 500 index, designed to supply safety through the US presidential election in November.

The Gammon Tailwind fund, which started buying and selling in the beginning of final 12 months, made the 601 per cent return to the tip of June earlier than charges, based on a letter to buyers. After subtracting charges, the fund made between round 300 per cent and 480 per cent, relying on the share class.

Mr Mescher mentioned he named the agency after educating himself to play backgammon, wagering 1000’s of {dollars} in video games in opposition to colleagues. A Gammon is a time period describing a win so giant that the opponent has to pay up double stakes.

Nonetheless, he admitted he had not totally realised the connotations of the title — both the type of uncooked pork or, within the UK, a pejorative time period to evoke indignant middle-aged males.

“I’m typically described as working ‘Low-cost Ham Capital’,” he mentioned, including that he has no plans to alter the agency’s title.

laurence.fletcher@ft.com

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