Tail risk is usually an important consideration for investors, and a desire to limit catastrophic loss has led to significant interest in protection strategies. Across four distinct market periods surrounding the COVID pandemic, we explore three common tail-risk mitigation strategies (1) a long...

This paper explains the risk and returns of US corporate bond indices using a set of economically-motivated factors. In particular, I find that options markets explain a great deal of credit returns. Two particular features of corporate bonds generate option exposure. The first is that, in...

Speculators who wish to bet on higher future volatility often purchase options to “go long volatility.” Should investors who buy options expect to profit when realized volatility increases? If so, under what conditions? To answer these questions, we conduct an analysis of the relationship...

Equity index collar strategies are often perceived as a way for investors, at little to no cost, to exchange some upside exposure for reduced losses on the downside. That perception may be accurate if one considers only the net dollar cost of the strategy's initial option trades, but it fails to...

Recent equity volatility is near all-time lows. Option prices are also low. Many analysts suggest this represents a good opportunity to purchase put options for portfolio insurance.It is well-known that portfolio insurance is expensive on average, but what about in calm markets? History suggests...

Equity index covered calls have historically provided attractive risk-adjusted returns largely because they collect equity and volatility risk premia from their long equity and short volatility exposures. However, they also embed exposure to an uncompensated risk, a naïve equity market reversal...

A covered call is a long position in a security and a short position in a call option on that security. Equity index covered calls are an attractive strategy to many investors because they have realized returns not much lower than those of the equity market but with much lower volatility....

Conventional wisdom is that put options are effective drawdown protection tools. Unfortunately, in the typical use case, put options are quite ineffective at reducing drawdowns versus the simple alternative of statically reducing exposure to the underlying asset. This paper investigates drawdown...

We explore the use of an option selling overlay to improve portfolio rebalancing. Within a multi-asset class portfolio, portfolio weights deviate from targets as asset values fluctuate. Investors typically use a rebalancing process to bring portfolio weights back to their desired strategic...

This paper explores historical return and risk properties of equity-hedged options across the S&P 500 option surface. We evaluate returns by estimating alpha to the S&P 500 index, and we quantify risk using three metrics: return volatility, losses under stress tests, and conditional value at...