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:

CHAPTER 1

What is the VRP?

CHAPTER 2

Capturing the VRP

CHAPTER 3

The VRP Suite

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 Four – VRP in Action

Learn more about the VRP

Read more from our 5 part series:

Volatility Risk Premium

Rebalancing Through an Overlay Strategy During Periods of Volatility

How Do Options Work? An Illustrated Guide