DeltaShift

For institutional investors

Parametric’s DeltaShift is a managed call-options-writing strategy that can be used in conjunction with single stocks and equity indexes. DeltaShift seeks to dampen volatility while enhancing equity portfolio return by capturing the volatility risk premium (VRP).

This strategy is most often implemented as an overlay without the need to adjust equity holdings or manager allocations. DeltaShift is also offered as a funded strategy with a long-term average beta of approximately 0.9. It is designed to provide a buffer against downside risk while still maintaining some upside participation in strong up markets.

Investing in an options strategy involves risk. All investments are subject to loss. Learn more.

The effectiveness of the option strategy depends on a general imbalance of natural buyers over natural sellers of index options. This imbalance could decrease or be eliminated, which could have an adverse effect. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived and -executed options programs may be adversely affected by market behavior or unexpected events. Successful options strategies may require the anticipation of future movements in securities prices, interest rates, and other economic factors. No assurances can be given that the judgment of Parametric in this respect will be correct.

Options are not suitable for all investors and carry additional risks. Investors must ensure that they have read and understood the current options risk disclosure document before entering into any options transactions. In addition, investors should consult with a tax, legal, or financial advisor prior to contemplating any derivative transactions. The options risk disclosure document can be accessed here: http://www.optionsclearing.com/about/publications/character-risks.jsp.

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Downside buffer with upside participation

DeltaShift’s goal is to reduce volatility in an equity portfolio while also maintaining some upside potential.

DeltaShift seeks to outperform the S&P 500® while reducing equity portfolio volatility. It also seeks favorable long-term performance against traditional call overwriting indexes. Compared to long-only equity investments, DeltaShift performs best in down, sideways, and moderately up markets, but the strategy can underperform in strong equity markets.

Portfolio construction

Model beta: 0.9

Intended benefits of DeltaShift

Flexible implementation

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DeltaShift may be implemented as either a fully funded strategy or as an overlay across a range of underlying portfolios, including active equities, index funds, ETFs, and single stocks.

Systematic options sales

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We sell short-dated equity call options observed to trade at a higher implied volatility versus realized volatility to capture the VRP.

Reduced volatility

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A covered call portfolio accesses the VRP by selling covered options without the use of leverage. Compared to a long-only equity portfolio, DeltaShift is designed to deliver a reduction in portfolio volatility while also maintaining some upside participation.

Improved liquidity

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DeltaShift aims to generate excess cash during down markets that may serve as a cash flow hedge in periods of market stress.

Illustrative DeltaShift results

Rules-based risk management example:

Traditional call writing is a trade-off between receiving an up-front payment in exchange for giving away upside, which is capped at a target level.
Unlike traditional covered call writing, a key goal of DeltaShift is to maintain substantial—but not all—upside participation during times of sharp appreciation.
During these times, we expect the total portfolio value to continue to appreciate without being capped, but it may underperform the index itself.

Source: Parametric. For illustrative purposes to show general return expectations for this strategy during markets characterized as down, flat, and rising. DeltaShift is expected to perform best in down and flat markets, while performance is expected to lag in rising and sharply rising markets. There is no guarantee that the strategy will be successful. All investments are subject to loss.

Why choose Parametric?

$532.1B+

Total firm AUM

$16.6B+

VRP solutions AUM

30+

Years of firm experience

As of 6/30/2024

MORE WAYS TO INVEST

Volatility Risk Premium

Parametric's volatility risk premium solutions are strategies that seek to benefit from the VRP, a distinct and diversifying risk premium that options buyers pay to options sellers. We’ve historically observed that this premium can be a persistent source of return, better positioning your clients’ portfolios to weather market volatility over a full market cycle and improve overall performance.

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