The market meltdown in early February — when US stocks had their biggest one-day fall in six years — proved to be more of a financial tremor, but the threat of an actual earthquake remains.

That’s according to Ruffer LLP, the British asset manager that was revealed to be behind a series of trades last year betting on a rise in market volatility, via the purchase of 50 cent options contracts. In a quarterly investment note to clients, Ruffer said that if a more significant event does occur, it’s likely to be soon. In the fallout from February’s market correction, questions about the extent of the market’s exposure to low-volatility trades was a key talking point. Ruffer says that if an “earthquake” does occur, “volatility will be a key issue in a market unwind.”  In effect, the extended period of low volatility has created a self-perpetuating cycle which spells danger ahead.


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