Jessica Noviskis, CFA
Volatility Risk Premium (“VRP”) strategies have struggled this year. The market’s extreme moves led to losses for put writing strategies on the way down and losses for call writing strategies on the way back up. Obviously not to be ignored, but the last six month period has truly been an outlier event. Now with the dust seemingly settled, we assess the opportunity from here. With rates near lows and equity valuations near highs, VRP strategies screen favorably, offering a more independent return stream.
In this paper, we look at correlations between returns and multiples, showing the relative advantage of VRP strategies, as well as the outsized opportunity created by today’s elevated levels of uncertainty.
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