​SigmaSquare's Stefan Wintner: Short-Term Volatility—A Free Tail Risk Hedge?

In a low yield world, investors are embracing the volatility risk premium as an income source. The popularity (measured in trading volume and open interest) of the VIX derivatives and similar products has been growing substantially over recent years – together with an ever rising equity market. Investors’ demand for yield seems to have tipped the scale in favour of shorting volatility (rather than buying it as a hedge) ignoring many of the risks involved in trading forward volatility.