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Innovative, option-based strategies offer defensive portfolio protection, asymmetric gains as financial market volatility surges

HFR Long Volatility Index advanced +3.8 percent in 1Q25 as volatility rose, managers positioned for April volatility spike

HFR to host Long Volatility investor event in Boston on May 13 

CHICAGO, (April 16, 2025) – HFR, the global leader in the analysis and tracking of hedge fund strategies and performance, is pleased to announce the launch of a new HFR Long Volatility Index, the hedge fund industry’s only pure benchmark of funds employing strategies engineered to produce strong asymmetric gains when financial market volatility surges. Building on its legacy of global leadership and innovation in the indexation, analysis and research of the global hedge fund industry, HFR’s new launch offers deep insights into the performance of these strategies utilized by managers and available to investors.

Long Volatility strategies employ a sophisticated range of portfolio trading options designed and engineered to produce powerful asymmetric performance under periods of increased volatility and financial market stress. Volatility strategies can include:

• Short dated options trading, known as ‘Gamma strategies’, which seek to benefit from increased realized volatility across any asset class;
• Longer dated volatility strategies, which benefit from the increased level of implied volatility in options prices and may include longer dated expirations which may be one or several years from the current period;
• Tail risk strategies which offer extremely high, asymmetric gains when market events occur which are considered to be unexpected, historically infrequent and/or statistically unlikely to occur. These are often defined as movements of multiple standard deviations from expected returns, which may occur when the volatility of the underlying asset experiences extreme dislocations or financial market stress.

Long Volatility strategies specifically focus on options which surge in value under periods of extreme financial market stress and dislocation with these events driven by market developments that occur infrequently and are highly unexpected yet offer high asymmetric payoffs when they do occur. These strategies contemplate and position for financial market scenarios which involve asset price movements of multiple standard deviations from normal historical movements. Volatility strategies are employed across all asset classes including equity, fixed income, currency and commodities. Since volatility strategies typically involve buying options on various assets, they often involve negative carry. This means returns can be muted or even negative when asset volatility declines, as the purchased options may expire out of the money.

Over the seven-year period ending March 2025, the HFR Long Volatility Index has produced an annualized return of +4.2 percent, including a monthly gain of +32.7 percent in March 2020 when volatility surged at the beginning of the global pandemic. HFR is launching two versions of the Long Volatility index – one which includes constituents which operate hedge fund structures that conform to HFRI methodology (HFRI Long Volatility Index), and a second index comprised of the same HFRI Index constituents, as well as other long volatility products which are not offered in a commingled hedge fund structure and do not conform to HFRI methodology (HFR Long Volatility Index).

HFR will host a private investor event focused on Long Volatility in Boston on Tuesday, May 13, featuring an overview of the new indices, presentation and a panel discussion with constituent managers. Investors interested in attending may request an invitation at events@hfr.com. Space for the event is limited.

“HFR is pleased to launch our Long Volatility Index at this historic period of surging financial market volatility, offering institutional investors a pure benchmark, increased awareness of and access to sophisticated strategies specifically engineered to produce asymmetric performance through periods of volatility and dislocations,” stated Kenneth J. Heinz, President of HFR. “Our Long Volatility Index provides investors with powerful insights into the behavior of strategies which have become integral components of modern portfolio management specifically engineered for periods of surging volatility and financial market stress. Investors are likely to increase their allocations to long volatility strategies in coming months as the ideal mechanism of defensive portfolio protection and opportunistic capital preservation.”

Download the HFR research report on Long Volatility strategies at www.HFR.com