Today at the CBOE RMC Europe conference Robert McGlinchey, Director and Co-founder of EQDerivatives led a lively panel discussion on Trends in Institutional Options and Volatility Product Usage.
Robert introduced the panelists which represent US and European institutions as well as a variety of types of firms –
Jean-Francois Bacmann, Portfolio Manager and Head of Volatility Strategies, Man AHL
Stephen Crewe, Portfolio Manager, Fulcrum Asset Management
Jack Hansen, Chief Investment Officer, Parametric Clifton Group
Andrew Rozanov, Former Managing Director, Permal Investment Management
The first question was about each panelist’s experience with volatility –
Jack Hansen cited the consistent performance of BXY and PUT as evidence that volatility selling strategies work over time. Stephen Crewe said his firm looks to selling 25 – 30 delta calls to take in premium. He also mentioned that his firm recently looked to the option market to develop a strategy based on a macro view that small cap stocks would underperform large cap stocks. The specific trade combined SPX and RUT options. Jean-Francois Bacmann stated that his firm will often look to the option market to opportunistically implement tail risk protection. Andrew Rozanov finished out this question noting that all equity investors will claim to be concerned about volatility, but they rarely have volatility managers or specialists working for them.
The next question addressed gaining alpha through the volatility markets.
Crewe noted an earlier speaker today commented on VSTOXX being cheap relative to VIX and that there may be opportunities in spreading cheap and expensive volatility markets. Bacmann continued with this theme and stated that regional volatility versus VIX often makes sense because some regional issues may not impact VIX, but global issues would impact volatility across the globe. In an answer to a later question, but along this theme, it was pointed out that selling volatility has worked even in a low volatility environment. For instance, at the beginning of June VIX was close to 11 but the realized volatility for the S&P 500 ended up being around 5 or 6 during that month. Hansen added that selling 5% OTM puts versus buying 5% OTM calls to hedge against a move to the upside was an idea he had seen implemented. This trade steep skew and low interest rates make this an attractive trade.