Stephen Crewe from Fulcrum Asset management and Dhvani Gupta from Barclays shared the presentation duties during a session titled Implementing Systematic Short Volatility Strategies at the 5th Annual European CBOE RMC this afternoon.
Dhvani Gupta started things off noting that the SPX Implied – Realized Volatility Premium has averaged 4.3% since January 1990 through present. She noted that short volatility exposure has benefits beyond traditional diversification techniques so she suggests substituting the equity risk premium with volatility exposure. She also spent time discussing the benefits of frequent trading to reduce path dependency as well as allowing for a more stable gamma profile.
Stephen Crewe followed up with a discussion that focused on the diversification benefits of short volatility positioning across asset classes. He noted that the correlation between the EuroStoxx 50 and S&P 500 is about 85% but the correlation of the volatility risk premium of options trading on those two indexes is around 72%. He also spent some time on different assets for example noting that the volatility risk premium for Natural Gas is correlated by only 2% with SPX volatility.