张同学2022-05-29 17:53:15

Tryon is long several equity positions based on event-driven ideas that, over the next few quarters, are expected to have double-digit returns. He is concerned, however, that the equity market may decline as a result of lower corporate earnings. He believes investors are complacent as reflected in the historically low level of the volatility index (VIX). He wants to establish volatility exposure as a tail hedge for his holdings and notices the VIX futures curve is in contango. Tryon evaluates three potential trades to establish his hedge: Trade 1: Go long back-end month futures contracts on the VIX Index, with a gross notional equal to the portfolio market value. Trade 2: Sell a rolling series of out-of-the-money put options on VIX futures. Trade 3: Go long a variance swap, with vega notional equal to the potential equity portfolio loss. Which trade is Tryon most likely to implement to establish his equity market hedge?