by Chase Thomas and Harvey Sax
Markets experienced a sharp volatility event on Friday, October 16, when the VIX rose rapidly alongside exceptionally high trading volume in UVXY. Oil prices subsequently climbed to new highs on October 23 before reversing lower the following Monday. These movements occurred amid ongoing geopolitical uncertainty, elevated energy prices, and concerns about inflation.
Oil markets continue to face different pressures across crude oil and refined products. Crude oil flows from the Middle East have recovered above pre-war levels, with other producers offsetting a decline in Iranian exports. However, supplies of refined products, including gasoline, diesel, and jet fuel, remain more constrained. Diesel prices have risen substantially relative to pre-war levels, contributing to concerns about energy costs and their potential effects on inflation.
The Federal Reserve held interest rates steady at its October 28 meeting, while inflation and the outlook for monetary policy remain important considerations for markets. Attention now turns to the November 3 election, with policy uncertainty, energy prices, and geopolitical developments continuing to influence market conditions.
Alpha Low Volatility Fund was affected by the sharp increase in market volatility during the period. The fund had been positioned more favorably before the volatility event, but subsequent market movements affected its results. The recent episode underscores how quickly changing volatility conditions can influence the environment in which the strategy operates.
Alpha Low Volatility Fund II also experienced pressure amid the recent market movements. The sharp change in volatility conditions created a challenging environment, highlighting the importance of monitoring market developments and managing positions as conditions evolve.
Alpha Synthetic Equity Protection Fund was affected primarily by weakness in the broader equity market rather than by oil-price movements. The decline in the S&P 500 contributed to pressure on the strategy, illustrating the influence of underlying equity-market conditions on its performance.
Alpha Wealth Volatility Advantage Fund faced pressure from weakness in technology-related positions. NVIDIA and TQQQ both declined meaningfully as the Nasdaq approached correction territory. The period highlights the influence that technology-sector movements can have on the strategy when these exposures are under pressure.
Following the sharp volatility event on October 16, open volatility positions in the separately managed accounts were closed as part of the firm's risk-management process. The accounts held positions with different expiration dates, and the impact varied according to individual account positioning.
Oil prices subsequently rose sharply into October 23, prompting adjustments to existing oil option positions. Prices reversed lower on October 26. Oil-related positioning and expiration schedules vary across accounts, making account-level exposure an important consideration as these positions approach expiration.
Alpha Wealth Funds is evaluating potential adjustments to volatility positioning in light of recent market conditions, including the possibility of reintroducing positions in stages. Any changes will depend on how conditions develop around the Federal Reserve's policy decision, the election, and broader volatility levels.
The firm is also monitoring oil prices relative to recent highs as remaining oil positions approach expiration. More broadly, equity-market conditions, energy prices, and inflation remain important areas of focus as markets respond to changing economic and geopolitical developments.
The views expressed reflect current market commentary as of the date of this communication and are subject to change without notice. Performance figures are preliminary, unaudited, and shown before applicable fees and expenses unless otherwise noted; actual investor results may differ based on fee structure and the timing of contributions or withdrawals. Nothing herein is a guarantee or forecast of future performance. This material is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security, fund, or investment strategy. Past performance is not indicative of future results. All investments involve risk, including possible loss of principal.
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