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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.


How options are used in the VRP process at Parametric:

Call Selling & Put Selling

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.

Learn more about the VRP


Read more from our 5 part series:

CHAPTER 1

What is the VRP?


CHAPTER 3

The VRP Suite


CHAPTER 4

VRP in Action


CHAPTER 5

Partner with Parametric


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