AQR
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The Tail Hedge Debate: Spitznagel Is Right, AQR Is Answering the Wrong Question
We tested Spitznagel’s tail hedging strategy and AQR’s critique with 17 years of real SPY options data. In the allocation-reducing framing AQR uses — selling SPY to fund puts — deep OTM puts lose at every budget. In the externally funded overlay Spitznagel actually proposes (100% SPY + put budget on top) deep OTM puts beat SPY, with the Sharpe ratio peaking near 0.5%-1.0% annual premium before reversing. Macro signals are useless for timing.