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At a glance, a near-record accumulation of speculative bets on market tranquility looks like it couldn’t have come at a worse time.

Elevated net short positions in Cboe Volatility Index futures are reminiscent of a similar spike in 2017, when prolonged calm in U.S. stocks prompted a rush into short-volatility exchange-traded products. That episode ended with billions of dollars in losses in early 2018 when a surge in volatility caught investors unprepared.

But Wall Street might not be so vulnerable this time around as investors have built up defensive positions in S&P 500 Index options and VIX-linked exchange-traded products.

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“The market isn’t complacent,” said Stacey Gilbert, portfolio manager for derivatives at Glenmede Investment Management in Philadelphia. “We have seen shifts over this past month where investors have become more defensive.”

That defense looks timely as back-and-forth headlines on the status of a U.S.-China trade deal have jolted stocks this week.

The one-month moving average for the put-to-call ratio of open contracts on the S&P 500 is at 2.2, well above its level ahead of previous sell-offs, data from options analytics firm Trade Alert show. A higher ratio reflects greater demand for puts, which are often used to hedge against a decline in shares.

Based on net short positions in VIX futures, investors may not seem very cautious. But while money poured into short-volatility ETFs in 2017, this time around, money is flowing into ETPs that gain from higher volatility.

As assets in long-volatility funds grow, their issuers must load up on VIX futures, which are being supplied by speculators seeking to generate income in a yield-starved environment, said Maneesh Deshpande, head of U.S. equity strategy and global equity derivatives strategy at Barclays in New York.

Assets under management for one of the largest long-volatility VIX-linked exchange-traded products, the VelocityShares Daily 2x VIX Short-Term ETN, hit a record high of $1.42 billion in early August and have remained close to those levels. As of Tuesday, the ETN had assets of $1.09 billion, according to YCharts.

“The long-volatility investor is in the driver’s seat,” Deshpande said.

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The VIX itself also reflects expectations for future stock gyrations well in excess of movements in recent weeks.

The index has risen past 14. By contrast, the S&P 500’s 1-month historical volatility, a measure of how much stocks have moved over the last month, sits at just 7.3, according to data from Refinitiv.

That difference “is at one of the highest levels we’ve seen in years,” said Glenmede’s Gilbert.

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