Summary

The Dry Powder strategy is designed to turn extreme market volatility events into opportunities for significant market gains. Dry Powder may avoid or eliminate the “cost of carry” normally associated with tail-risk strategies. The Dry Powder Program expects to produce minimal losses in most years with rising markets or declining volatility. Dry Powder is built to be the first core hedging component of your equity portfolio. While the conventional tail-risk strategy generally holds a perpetually net long volatility position, managers of these programs typically seek to mitigate the cost of carrying these positions. These managers will therefore sell volatility elsewhere in their portfolios. Selling volatility to help finance long volatility positions has two key effects: The managers do, in fact, reduce but do not eliminate the cost of carry, and The short volatility positions offset and reduce the potential to capture large volatility moves The end result is that, on the whole, and according to the CBOE Eurekahedge Tail-Risk Index, these strategies do not compound capital over time. In fact, they are a net cost to buyers of these strategies.