Equity vol convexity selling gains momentum

“You’re playing with fire when you’re selling this thing.” This is how one analyst describes the spiralling risk associated with selling equity volatility convexity. Yet investors are dabbling in the strategy once again, as returns from other, lower order premia such as volatility, skew and term structure have dried up.

Equity vol convexity selling – typically harvested through options on the Vix volatility index or structured products such as variance swaps – involves providing hedges against