The Short-Vol Trade Is Back: Why Some Investors Think It's Driving Tranquility in Markets.

Investors are increasingly putting their money into derivative-income funds that sell options contracts in order to generate income and protect against potential losses. These funds primarily invest in stocks or major indexes and sell call options on those assets in exchange for an upfront payment. While these funds tend to perform well in a sideways market, they can miss out on potential gains during a big rally. The popularity of these funds has been attributed to investors seeking regular income or protection against losses, particularly as they near retirement age. However, there are concerns that these funds could contribute to market volatility, although some believe that the current option structure is relatively benign. [Extracted from the article]