The second presentation on the first day of RMC featured a discussion titled Constructing / Deconstructing Volatility Risk Premia Strategies delivered by Roni Israelov from AQR Capital Management.  This presentation centered around an article that appeared in the Financial Analysts Journal in 2015 titled Covered Calls Uncovered which may be found at

This presentation started out with a discussion of Covered Calls with the CBOE S&P 500 BuyWrite Index being used to demonstrate the type of returns associated with a systematic covered call program.  It is noted that covered calls seek to offer equity-like returns with lower volatility.

Israelov breaks down the returns associated with covered calls into three parts:  passive equity, short volatility, and equity timing.  Specifically, he notes that a covered call includes equity timing and short volatility exposure and reduces passive equity exposure relative to the underlying equity index.   He noted their approach to studying these returns may be applied to other strategies and that AQR has another study available focusing on equity index collars which is also available at

Some highlights from Israelov’s presentation include:

  • The alpha from selling an at the money call comes from being short volatility
  • A demonstration of how the timing bet associated with the at the money covered call grows and then resets
  • Noting the potential performance of a strategy that eliminates the equity market timing risk component of a buy-write strategy which he refers to as a Risk-Managed Buy-Write Index
  • He also noted that the beta for a risk managed strategy is much lower than a traditional buy write strategy when the market is under pressure
  • He finished up with a preview of a forthcoming study that looks at covered call returns for 11 global equity indexes