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.