Call options are derivative contracts that allow investors and traders to wager that the value of an underlying security will increase, and puts bet on a decline. The contracts give investors the right but not the obligation to buy or sell a security at a certain price.

The S&P surged to 1,959.48 yesterday, the highest ever, from this year’s low of 1,742 in February. At an investor conference in May, Goldman Sachs Group Inc. President Gary Cohn blamed the reduction in trading on calm markets and the Fed’s efforts to hold down interest rates.

Hedge funds are betting the stock-market tranquility will be around for a while. Large speculators have added bets on lower volatility in the last two months, according to data from the Commodity Futures Trading Commission. They were net short about 73,300 contracts on VIX futures as of June 10, about the most since October, CTFC data show.

The historic lack of price swings is costing Saba Capital Management LP money. Saba’s credit fund fell 1.7 percent this year through May and assets in the strategy have shrunk 23 percent to $2.7 billion since the start of December.

New Mexico

The investment committee of New Mexico’s public employees’ pension fund voted last week to pull $43.5 million from Saba, citing an inability to make money in the current low-volatility environment, said a person with knowledge of the decision, who asked not to be named because its internal discussions are private.

Saba isn’t alone in struggling. Funds run by Paul Tudor Jones, Brevan Howard Capital Management LP and Fortress Investment Group LLC are among those that have lost money this year.

Pimco’s bet on tranquil markets stemmed from its new thesis outlined on May 13 from the annual Secular Forum, which guides its investment philosophy for the next three to five years.

At the Secular Forum, Pimco’s money managers and analysts listen for two and a half days to “distinguished guest speakers,” who this year included Harvard University professor Carmen Reinhart and FiveThirtyEight.com founder Nate Silver, to establish their world view on global economies and markets. For the rest of the week, they turn that philosophy into trading strategies.

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