“While that is modest relative to the roughly $34 trillion value of the S&P 500 alone, such funds bear watching since they buy in rising markets and sell when stocks tumble, and can potentially exacerbate downside moves as well as rallies.

To be sure, while volatility has fallen from last year’s peaks, when the VIX rose as high as 36.55, current levels remain above the index’s long-term average, a sign that options investors are likely mindful of the risks ahead, said Garrett DeSimone, head of quantitative research at OptionMetrics.

‘Market volatility measured by VIX remains stuck above the 18 level, which is its long-term average. This indicates a slight anxiety regarding macro outcomes on future volatility,’ he said.”

Featuring insight from OptionMetrics, read the full Reuters article,“Analysis: Hawkish Fed could hobble volatility funds’ stock buying spree,” below.