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Insights
An Update on the Volatility Risk Premium (VRP)
Friday, May 29, 2020
Our April Market Perspective focused on
how the Volatility Risk Premium (VRP) has changed over time and noted that its
first quarter of 2020 inversion reached record-setting levels in February. VRP
has been positive since mid-March, and averaged 14.23 from March 17 through
April 28, i.e. the 21-day1 realized volatility period ending May 27.
Source: Bloomberg, L.P.
The VRP average since March 17 is nearly three times the average
positive VRP reading since September 2008 and, as the longer-term chart shows,
recent VRP readings are the highest since December 2008. Writing index options
in this environment has strong potential for enhancing risk-adjusted returns
while achieving a lower-risk profile than the broader equity market.
Source: Bloomberg, L.P.
1Equity and index option markets are open approximately 21 days per month, on average.
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Categories
U.S. Market Recap
June 2020 Market Recap
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April 2020 Market Recap
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Q3 2019 Market Recap
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U.S. Market Perspective
May 2020 Market Perspective
April 2020 Market Perspective
March 2020 Market Perspective
February 2020 Market Perspective
January 2020 Market Perspective
December 2019 Market Perspective
November 2019 Market Perspective
October 2019 Market Perspective
Q3 2019 Market Perspective
August 2019 Market Perspective
July 2019 Market Perspective
June 2019 Market Perspective
May 2019 Market Perspective
April 2019 Market Perspective
Quick Takes
Flagship (Index/RA) Commentary
2020 Flagship (Index/RA) Commentary - Q1
2019 Flagship (Index/RA) Commentary - Q4
2019 Flagship (Index/RA) Commentary - Q3
2019 Flagship (Index/RA) Commentary - Q2
2019 Flagship (Index/RA) Commentary - Q1
Active Overwrite Commentary
2020 Active Overwrite Commentary - Q1
2019 Active Overwrite Commentary - Q4
2019 Active Overwrite Commentary - Q3
2019 Active Overwrite Commentary - Q2
2019 Active Overwrite Commentary - Q1
Active Putwrite Commentary
2020 Active PutWrite Commentary - Q1
2019 Active PutWrite Commentary - Q4
2019 Active PutWrite Commentary - Q3
2019 Active PutWrite Commentary - Q2
2019 Active PutWrite Commentary - Q1
2018 Active PutWrite Commentary - Q4
2018 Active PutWrite Commentary - Q3
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