Defensive Premium Harvest

Investment objective. Enhance the yield and reduce the drawdown of a core S&P 500 holding by systematically harvesting the equity/variance risk premium through short index puts, while carrying a standing long-volatility hedge against left-tail events. Target: a better risk-adjusted outcome than buy-and-hold or a standard buy-write.

Instruments / venue. Short S&P 500 (XSP) puts for income; long VIX calls as a convex hedge. Listed, cash-settled, European-style; not OTC. Run as an overlay.

Expiry selection. Puts in a medium-dated tenor; the VIX-call hedge longer-dated, so it persists across multiple income cycles. Positions are exited as expiry approaches.

Strike selection. Puts low-delta out-of-the-money, balancing premium against assignment risk; VIX calls low-delta OTM. The hedge quantity is set as a fixed fraction of the put premium, so protection scales with the income written.

Position sizing. VaR engine (see Common Framework), with the long VIX-call hedge netted into the budget, so the position reflects true combined net risk rather than gross short-put notional.

Rebalancing triggers. Calendar: a new tranche on a periodic, rules-based schedule, with a volatility-based entry refinement that can bring an entry forward within the window. Event-based: early exit as expiry approaches; a long-horizon moving-average trend filter flattens both the put and the hedge legs when the index breaks below trend and gates new entries while it remains below trend.

Greeks / execution. Per Common Framework.

Backtest methodology

(Sample period: 2023-03-08 – 2026-06-30; hypothetical)

• Average outperformance vs benchmark (S&P 500): + 0.38 % per month, + 1.11 % per quarter, + 3.67 % per year
• Average time in trade (holding duration): 38.9 days
• Average trade frequency: 2.93 per week, 12.75 per month