Don’t Get Caught with Your Shorts Down

Highlights

• Rapid interest rate increases, high inflation, monetary policy shifts and geopolitical tensions have fueled market uncertainty in 2023.
• Even so, implied volatility as measured by the VIX^® (Cboe^® Volatility Index) has been below its historical average since 1990.
• In this environment, some investors believed that any bout of volatility would recede quickly, and began shorting volatility by betting against short-term futures tied to the VIX^®.
• While this was a popular strategy in the low-volatility quantitative easing era, making a directional bet on volatility through shorting runs the risk of unlimited potential loss.
• A different strategy – options-based strategies that sell volatility – may allow investors to capture the difference between realized and implied volatility (the Volatility Risk Premium) while generating cash flow.
• Since 1977, Gateway’s index options-based strategies have had steady track records and consistent risk profiles – and are poised to continue benefitting from the current market environment.