Blue and Gray Wavy Lines

Chapter Four – VRP in Action

Parametric’s Defensive Equity strategy is designed to deliver equity-approximating returns across most market environments1 with significantly below equity-market risk.

We access the volatility risk premium (VRP) through four components: 50% equity exposure (the S&P 500® Index), 50% U.S. Treasury bills, and an option overlay consisting of 50% written S&P 500® Index calls and 50% written S&P 500® Index puts.

1Defensive Equity is expected to deliver the best relative performance in down and sideways markets, while tailing in strong markets.

We de-risk the underlying portfolio by converting half of the equity allocation to cash (U.S. Treasury bills) and generate additional portfolio income by selling fully collateralized index options to seek to harvest the VRP. In this way, the “defensive equity” portfolio replaces exposure to the (less persistent) equity risk premium in favor of the more persistent VRP, without adding leverage.

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

Learn more about the VRP

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.

Read more from our 5 part series:


What is the VRP?


Capturing the VRP


The VRP Suite


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