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Option-Based Strategies: Opt In or Opt Out?

Harvesting Fear and Greed

Nicolas Rabener
10 min read
7 May 2019

SUMMARY

  • Option-based strategies generated better risk-adjusted returns than the S&P 500 over the last 30 years
  • Investors should be wary of buying options and focus on harvesting the volatility risk premium by writing options
  • Option-based strategies are an interesting alternative to long-short equity hedge funds for reducing risk

BUYING VERSUS SELLING OPTIONS

The investment banking divisions of Goldman Sachs, Morgan Stanley, and similar firms pride themselves on servicing sophisticated, blue-chip institutional clients. They mostly avoid the retail market because there is less to be gained – except for certain niches that are too profitable to ignore. Selling derivatives to German retail investors is one such niche.

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