Chapter Two – Capturing the VRP

There are multiple ways to harness the volatility risk premium (VRP): variance swaps, VIX futures and equity index options.

Both variance swaps and VIX futures tend to be too complicated and potentially intimidating for many investors. Our preferred, and perhaps more accessible method is using equity index option strategies.

Options provide the opportunity to adjust portfolio exposures. This feature makes them a valuable tool for investors – not just speculators. In essence, option contracts may be viewed as insurance contracts where investors can buy (hedge) or sell (underwrite) financial insurance.

By systematically selling combinations of calls and puts, we attempt to capture the VRP effectively and consistently.

Check out our comprehensive overview of Parametric’s VRP Solutions.

How options are used in the VRP process at Parametric:

For informational and illustrative purposes only. Not an offer to buy or sell securities. Past performance not indicative of future results. Not able to invest directly into indexes. Investing in an options strategy involves risks. One or more combinations of the following risks may be incurred: Trade Restrictions Risk, Liquidity Risk, Early Termination Risk, Option Collateral Risk, and Opportunity Risk. See disclosure pages for additional information. All investments are subject to loss. For use with Investment Professionals and Accredited Investors Only.

Learn more about the VRP

Read more from our 5 part series:

CHAPTER 1

What is the VRP?

CHAPTER 3

The VRP Suite

CHAPTER 4

VRP in Action

CHAPTER 5

Partner with Parametric

Investment advisory services offered through Parametric Portfolio Associates^® LLC ("Parametric"), an investment advisor registered with the US Securities and Exchange Commission (CRD #114310). Parametric is also registered as a portfolio manager with the securities regulatory authorities in certain provinces of Canada (National Registration Database No. 42850) with regard to specific products and strategies. Parametric provides advisory services directly to institutional investors and indirectly to individual investors through financial intermediaries. The information on this website does not constitute an offer to sell, or a solicitation of an offer to purchase, securities in any jurisdiction to any person to whom it is not lawful to make such an offer. Investing entails risks, and there can be no assurance that Parametric (and its affiliates) will achieve profits or avoid incurring losses. All investments are subject to potential loss of principal. Parametric does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the disclosure page for important information about investments and risks.

S&P Dow Jones Indices are a product of S&P Dow Jones Indices LLC (“S&P DJI”) and have been licensed for use. S&P^® indexes are registered trademarks of S&P DJI; Dow Jones^® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); S&P DJI, Dow Jones, and their respective affiliates do not sponsor, endorse, sell, or promote Parametric and its strategies, will not have any liability with respect thereto, and do not have any liability for any errors, omissions, or interruptions of the S&P Dow Jones Indices.

Chapter Two – Capturing the VRP

How options are used in the VRP process at Parametric:

Learn more about the VRP

Read more from our 5 part series:

Volatility Management

Rebalancing Through an Overlay Strategy During Periods of Volatility

How Do Options Work? An Illustrated Guide