A Volatility Chart

Liquid Alternative

Our Liquid Alternative strategy is designed to systematically capture VRP using a transparent and rules-based investment process without the use of leverage. It offers a beta of 0.3, comparable to many hedge funds.

Strategy Goals

The Liquid Alternative strategy is designed to systematically capture a distinct and diversifying risk premium.

The strategy follows a transparent, rules-based investment process that targets an equity beta comparable to hedge funds, without the use of leverage. It employs a mix of fully collateralized S&P 500® Index options to seek increased returns without increased risk. Liquid Alternative can be used as a standalone allocation or in a core-satellite framework with a portfolio of hedge funds, potentially reducing the overall fees associated with a typical alternatives portfolio without compromising risk-adjusted returns. The strategy’s objective is absolute return.

The volatility risk premium represents the amount paid by option buyers in exchange for the insurance-like protection that options can provide. Option sellers receive this premium amount embedded in option prices, as the premium for providing liquidity to option buyers.

Liquid Alternative is the newest addition to Parametric’s VRP strategies which include a spectrum ranging from covered calls to cash-secured put selling, and include hybrid strategies which vary the underlying portfolio as well as the mix of options. All of these strategies are designed to target a client’s specific risk/return objectives.

Shift From Traditional to Core - Satellite Framework

  • Hedge funds are being disaggregated into alternative beta and alpha1
  • Investors can access alternative betas in a low cost, efficient manner
  • Disintermediation by providers of alternative beta is causing investors to re-think their allocations to alternatives from the traditional to a core-satellite approach

Liquid Alternative Framework


1Ge (2015), “Liquid Alternative as a Viable Investment Choice” The Journal of Index Investing

For informational purposes only

Liquid Alternative is offered by Parametric Investment & Overlay Strategies.  For additional information please visit the Disclosure page.

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Volatility Risk Premium
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