A good way to simulate a vol swap or var swap

Discussion in 'Options' started by newwurldmn, Mar 15, 2012.

  1. newwurldmn

    newwurldmn

    So here's my situation.

    I trade out of a reg t account. This makes trading volatility (with daily hedging difficult as its easy to hit the margin limits which are unfavorable to stock ownership).

    However, I want to mimic a short variance swap or a short vol swap (largely indifferent as to my strategy the pnl will be similar). What are some good ideas to do this and keep my margin usage low?

    One idea is to sell straddles and readjust with the options (lots of rolls).
    Another idea is to use some kind of VIX put or combo.
    After that I'm kind of stuck.

    I want to take a bet on daily realized vol and use the least amount of Reg T capital to do so.

    The properties of variance swaps (ie constant gamma, etc) would need to be consideration, but they are secondary to this margin issue on delta hedging.