“Relative value” fund blowup product of the day: Skew Lock.

Fund sells down-variance: a varswap where daily returns only count in the payoff if spot on that day < X% of initial level on trade date.

Fund buys up-variance: the daily returns only count if spot > Y%.

Trade is initially vega neutral, the fund is long one variance swap and short another variance swap. So the PM can tell bosses and investors that it’s a relative value trade. https://abs.twimg.com/emoji/v2/... draggable="false" alt="🙈" title="See-no-evil monkey" aria-label="Emoji: See-no-evil monkey">

But the trade is just outright short variance if the market goes down more than X ...