Short EUR 6M 10y treasury receivers call, 50 bps Out-of-The-Money options on bonds or equivalently Sell receivers swaption on rates an option seller is naturally short volatility.
But in a bear market when prices are declining strongly, the delta of the option rapidly vanishes.
We used Sharpe single index ratio in our earlier post in order for calculating risk-adjusted return.
On the other hand, the premium collected by selling the call systematically also increases as the volatility increases in a bear market.
So, the strategy that consists of selling calls is generally a good hedge against market downturns.
The option combination of longs on 10Y Deutsche Treasury plus Shorts on 6M OTM Calls can be useful when current bond market trend takes U turn.
This has been effectively performing on US treasuries from last one & half years well above naked underlying position, but unlike US fixed income instruments, German bunds outperformed from last recent past as the yields have been very effective.