Vol Targeting Overlay
Vol Targeting Overlay — Scaling exposure to hold portfolio realized vol near a budget.
Definition
Vol Targeting Overlay refers to scaling exposure to hold portfolio realized vol near a budget. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Options and futures embed views on vol, skew, and path that cash markets only hint at. When scaling exposure to hold portfolio realized vol near a budget shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what vol targeting overlay is saying. If scaling exposure to hold portfolio realized vol near a budget moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
State the expiry and Greek exposure; unmarked vol or pinning effects rewrite the thesis. Prefer a short written null hypothesis for Vol Targeting Overlay: what would falsify the current reading in the next window?
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