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Over 3 billion options contracts have been traded so far in 2018, passing through 15 exchanges. The world of options has expanded to become a versatile tool used by millions across the globe to help better manage their investment needs. However, options utilization can be overwhelming with all there is to know about evaluating them, so in this paper we:
  1. Breakdown the history and how their standardization drastically increased the use of them;
  2. Unpack synthetics and how they can provide a deeper understanding of a strategy’s risk/return profile so one can make better-informed decisions regarding the right strategy for their portfolio;
  3. Identify and compare/contrast the various different types of strategies within Morningstar’s large ‘Options-Based” category, to help due diligence and investment selection processes.
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After the Financial Crisis of 2007-09, demand increased for alternative investments that offered low correlations to traditional asset classes.

However, using traditional risk/return metrics and benchmarks often provides limited value in measuring effectiveness of alternatives.


We explore a few little-known risk metrics that can be helpful in assessing investment choices, especially those involving alternative funds:
1. Minimizing losses: pain index, pain ratio
2. Avoiding tail risk events: omega, upside/ downside omega
3. Provide consistent, steady returns: Zephyr K-ratio

By definition, systematic risk cannot be diversified away. Therefore, at Swan, we believe if you can’t diversify away systematic risk, you must hedge it away.


The goal of this study is to show how hedged equity, through an investment vehicle such as the DRS, can be superior to traditional asset allocation or help enhance it. The results are intriguing.


This white paper also highlights 13 popular, well-known asset allocation strategies and illustrates how an allocation to the DRS could offer favorable absolute and risk-adjusted returns.

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