Long Volatility Alternatives Discussed at RMC

Daniel Danon from Assenagon Asset management and Nicolas Vanhoutteghem from Argentiere Capital teamed up for a discussion around Implementing Long Volatility Exposures at CBOE RMC in Ireland this afternoon.

Danon kicked things off with a discussion centering around creating an affordable volatility exposure.  This is a topic that we could probably have a single full day conference discussing as the flexibility around how to gain long volatility exposure without suffering the costs often associated with this exposure.  In the time allotted he was able to compared long put options, delta hedged positions, and using various long volatility structures.  He then noted that relative value trades are a good method of financing long volatility exposure in order to hedge a portfolio.

Vanhoutteghem started his session off noting that 3 month SPX implied volatility is near the 15th percentile over the past 10 years.  However, this does not mean that protection is cheap because realized volatility is at 6.5 or 6 volatility points below implied.  The normal level is about 2 volatility points of premium to realized.  The result is a high cost of carry and the goal is to determine how to minimize this cost of carry.