The purpose of this document is to continue exploring the surrounding landscape and the changes to the financial markets that could or are currently impacting the Defined Risk Strategy (DRS). This paper will discuss new financial concepts and theories and will focus mostly on volatility related matters and their impact on the DRS.

This analysis will tackle some of the developments facing the financial industry with specific focus on market dynamics and the drastic change in volatility over the last year that continues to baffle many investors.

1. First, a review of the current risk premia levels will be provided followed by a discussion on risk parity products and their imprint on volatility-based strategies.
2. Second, there will be a section discussing whether shorting options for yield enhancement has become a “crowded” trade.
3. Third, a framework for why volatility has decreased will be hypothesized by examining equity correlations.
4. Fourth, an in-depth assessment of skew will be presented and its significance as it relates to the income- component of the DRS.
5. Finally, new metrics will be introduced that can be used to gauge market volatility beyond simply relying on the Chicago Board Options Exchange (CBOE) VIX calculation.

Even though Swan is continuously tasked with adapting to a changing landscape, there is no question that Swan Global Investments is up to the challenge and is constantly exploring every conceivable advancement to remain the current and future preeminent leader in hedged equity and option-based strategies.