Still, equity strategies that involve selling volatility are booming in the exchange-traded fund industry this year. ETFs that have drawn inflows include the JPMorgan Equity Premium Income ETF (ticker JEPI) and Global X Nasdaq 100 Covered Call ETF (QYLD).
“The short volatility strategy has just taken a new appearance,” said Daniel Kirsch, head of options at Piper Sandler & Co. “After 2020, the strategy became out of favor and with the growth of active ETFs/mutual funds writing options.”
For Lukof at ABR, the best way to use the strategy is to complement funds that act as a buffer to volatility during market turmoil. ABR offers a 50/50 and a 75/25 volatility fund. The former splits exposure between long- and short-volatility strategies, while the latter has a bigger tilt toward long vol.
“We never recommend using 100% pure short-volatility exposure as a standalone,” Lukof said. “Long-term investors are better off having exposure to both long volatility and short volatility trades.”
This article was provided by Bloomberg News.