Trade Nivesh Hedging Equity

That product had to combine short volatility with negative equity correlation – an apparent paradox that the team resolved by looking under the bonnet of alternative parts of the trade. Eventually, they struck gold with an innovative, yet surprisingly simple, delta-hedging structure.

Whenever you do short vol, you’re long delta so you tend to inherit a tail risk in a severe market selloff. It’s a problem we’ve seen at different points in history Hichem Souli, BofA
The result is Synthetic Uncorrelated Volatility (SUV). Packaged in an index, the strategy sells strips of vanilla options on a daily basis, harvesting the implied-versus-realised risk premium through benign times without incurring losses in a sell-off.