Low Volatility Makes Chasing Yield Risky

In the current low-volatility, low-yield environment, investors are attempting to recoup lost revenue by betting that things will stay calm. This according to a recent article in The Wall Street Journal that says investors are “desperate to sell insurance” in the form of options to earn whatever premiums they can. Buyers of options insulate themselves against price swings while sellers are paid premiums as compensation for the risk of those swings. “Selling lots of options against unlikely events can generate a steady stream of income” which is enticing to yield-starved investors. The logic is illustrated through the example of home […]