Fixed-strike Options Strategies and Volatility Risk Premium Discussed in Switzerland

On Tuesday, September 29, in Switzerland at the Fourth Annual CBOE Risk Management Conference (RMC) Europe, two experts – (1) Maneesh Deshpande, Managing Director and Head of Equity Derivatives Strategy, Barclays, and (2) Scott Maidel, Senior Portfolio Manager / Trader, Equity Derivatives, Russell Investments — engaged in a discussion of –

Vanilla But Not Boring: Fixed Strike Option Strategies

  • Volatility Risk Premia (VRP) alpha, equity replacement and overlay strategies using SPX and RUT index, VIX and single stock fixed strike options
  • Implementation considerations using fixed strike options
  • Optimized rebalancing with the option expiration anomaly
  • Improving strategies with timing signals, stock selection and over-hedging

Here are some of the many points made during the expert presentations –

  • The term structure of volatility for single stock options can be effectively used to enhance performance of systematic single stock volatility trading strategies.
  • Transaction costs are a key consideration for single stock volatility strategies.
  • SPX straddles sold on a month-end roll schedule outperformed every other roll schedule, with the straddles sold on the regular expiration schedule performing the worst. This is not due to different levels of implied volatility but because realized volatility of monthly returns is higher between expiration to expiration vs month-end to month-end.
  • The short VIX strangles strategy is designed to capture the volatility risk premium embedded in VIX options.
  • Options have been mispriced over the investment cycle. The mispricing is reflected as a consistent premium we refer to as the volatility risk premium (VRP). The existence of the VRP is confirmed by the historic market data.
  • Implied volatility of implied volatility is generally higher than Realized volatility of implied volatility. This is volatility of volatility risk premium.
  • A list of 20 CBOE benchmark indexes (BXM, BXR, PUT, CLL, etc.) was presented and discussed.
  • Both speakers covered the VVIX (VIX of VIX) Index, and it was noted that VVIX rose to an intraday high of more than 210 in August. (


The chart below is from of a 2012 paper by Hewitt EnnisKnupp – “The CBOE S&P 500 BuyWrite Index (BXM) – A Review of Performance.” The chart shows that in all of the years presented (except 2008) the implied volatility for SPX options was less than the subsequent realized volatility of the S&P 500 Index, and therefore one could argue that SPX options usually were richly priced and that investors who consistently sold SPX options could have had potential for strong risk-adjusted returns.


More information on CBOE strategy benchmark indexes and research papers that discuss the volatility risk premium are at