On Wednesday, Bloomberg reported that multi-strategy hedge funds managed to get through August largely unscathed.

The linked article documented “steady returns” for multi-strat firms, but noted that “tough trading conditions” did result in some liquidations and scattered pod casualties.

Note that the dispersion trade — which, simplistically, funds longs in single-name vol with index-vol shorts — is a pod shop favorite. Basically, the trade looks to exploit the disparity between surface-level calm and underlying churn. Conceptually that’s a bit self-referential: The funding leg is in some measure a function of itself to the extent the dispersion trade is part and parcel of the structural supply overhang which serves to suppress index-level volatility.

When you think about sessions like September 3 and August 5, it’s worth asking what impact these escalatory market maker convexity events are having on one of the Street’s most crowded trades. As discussed at some length here late Tuesday evening, September 3 bore the hallmarks of another dealer stop-in across what Nomura’s Charlie McElligott described as a “broken” VIX options space.

But, as he wrote Wednesday in a follow-up, “you didn’t have to be trading in that space per se to feel the pain, as anybody whose book trades short skew, short forward vol or short correlation got soul-punched.” Of course, “short correlation” is just “long dispersion.”

The table on the left, above, gives you a sense of the pain, while the chart on the right puts September 3 in the context of August 5. (Click them to enlarge, as always.)

“Realistically, the greeks on the VIX call spread [weren’t] utterly massive,” McElligott wrote, referencing hedging flows around a trade put on quietly late last week. “But it helped spark the fire in light of the crowding into so much short vol product,” he went on, noting that “proliferati[ng] vol pods have been running not just the vol carry stuff, but also long dispersion.”

September 3’s fireworks, then, probably evidenced additional pod unwinds.