Trend-following versus options - Finding cheap convexity

While many focus on the value of trend-following as a strategy for uncorrelated returns that will do well during a crisis, there is another story based on convexity. Given trend-following exploits divergences, it will do well during market extremes and provide positive convexity. 

These two narratives are closely aligned but represent different views about the strategy return profile. Trend-following has been classified as being a set of long straddles. The long straddle story focuses on trend-following as a long convexity or divergent strategy regardless of market direction.  

With trend-following being long convexity, a discussion naturally focuses on the different ways of obtaining convexity. It can be generated through capturing trends, or it can be obtained through purchasing options (straddle replication). A simple question is asking which is better. See "Creating Portfolio Convexity: Trends versus Options"

Over the short-run straddles will provide more convexity than trend-following but the cost if markets do not move is high. Stand-alone returns may be negative. On a rolling 3-month basis, trend-following may generate more convexity. This convexity is especially strong during worst quantile of returns, and may come from different asset class sources. 

There are various ways of obtaining downside protection from options but all are expensive. The cheapest way for getting convexity may still be through trend-following even though it is an imprecise way of obtaining this long convexity.