in recent years volatility has become a new asset class which can be added to existing portfolios to reduce portfolio risk especially in times of crisis and could be used as an absolute return strategy as well.
el faro volatilityseason uses the shape of the term structure of the volatility which could be compared with the yield curve of bonds to decide if the strategy goes long, short or flat volatility.
el faro volatilityseason takes advantage of the fact that volatility is mean reverting in the long run, i.e. volatility cannot grow to arbitrary high or low levels but eventually moves back towards its long-term mean. that makes volatility predictable.
the investor in the market is willing to pay a premium to reduce the risk of his portfolio. It is a natural by-product of this fundamental market power, which is an aversion to uncertainty, and it is profitable because the sustained return is a justified reward for the investor's bearing of risk and acceptance of risk.
the instruments we use trade at very high volume. some reaches the same level like shares of Nike or Intel
the fund weights strategies depending on their risk figures to combine multiple uncorrelated trading ideas.