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Dynamic Put Selling

For institutional investors

Parametric’s Dynamic Put Selling program aims to capture the volatility risk premium (VRP) by selling fully collateralized put options on the S&P 500® Index.

Dynamic Put Selling may make sense for investors who seek to increase returns on underlying fixed income portfolios or cash. The strategy seeks to earn the VRP by selling put options on the S&P 500^® Index.

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 well-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 at the following web address: https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document.

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A strategy that
adapts to the market

DPS employs a rules-based, systematic approach that avoids forecasts and market timing but remains responsive to changing market conditions through the use of dynamic strike prices. Strike prices are determined by targeting a likelihood of worthless expiration. Implied volatility drives the determination of strike price, and strike prices move further out of the money in higher-volatility environments. Frequent expirations mitigate risk and allow for the capture of mean reversion in volatility.

Due to economic, behavioral, and structural factors, options buyers are willing to pay a premium to sellers to hedge against the risk of drawdowns and volatility. DPS capitalizes on this tendency for index put options to trade at higher implied volatilities than realized volatility.

Potential portfolio allocation

Model beta: 0.1

Intended benefits of Dynamic Put Selling

Enhanced return

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The strategy seeks to generate consistent positive returns by selling fully collateralized equity index put options against underlying collateral.

Diversifying risk premium

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The strategy seeks to enhance returns of the underlying bond portfolio or cash without taking additional duration or credit risk.

Diversified exposures

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The strategy executes multiple option tranches with short expiration dates, improving diversification and reducing path dependency.

How Dynamic Put Selling works

Base portfolio
Short-tenor options, reset quickly
Tranche-driven diversification

The investor owns a bond portfolio or cash.

These options have short-dated tenors and therefore decay rapidly. Dynamic strike prices target options with a high likelihood of expiring worthless.

We stagger exposures over multiple strikes and expirations, which helps to improve diversification and reduces path risk.

Why choose Parametric?

$574B+

Total firm AUM

$18.1B+

VRP solutions AUM

30+

Years of firm experience

As of 12/31/2024

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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More to explore

Dynamic Put Selling

Enhanced return

Diversifying risk premium

Diversified exposures

Why choose Parametric?

Volatility Risk Premium

Get in touch

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