Correlated Unwind of Short Volatility?

Is volatility dangerously oversold? In their November 2017 paper entitled “Everybody’s Doing it: Short Volatility Strategies and Shadow Financial Insurers”, Vineer Bhansali and Lawrence Harris survey strategies that directly or indirectly short volatility, including:

• Relevant strategies (selling options, buying and selling products linked to volatility indexes, risk parity, risk premium harvesting and volatility targeting).
• Types of investors that use them.
• Commonalities among them.
• Implications of commonalities (correlated unwinding).

Based on the properties of these strategies, they conclude that: (more…)