EUR/USD: structuring an implied volatility trade

Discussion in 'Options' started by pcvix, Nov 21, 2006.

  1. pcvix


    Hi all

    EUR/USD implied volatilities have reached new lows recently. If one takes the view that volatility will return with a vengeance within, say, 12 months, what would be a sensible way to structure an option trade to exploit such change?

    All feedback is welcome, especially from the many experienced option players on ET.

  2. rosy2


    buy a strangle or straddle
  3. Take a look at OC volatility journal. He has put together a variety of near-delta neutral very-high-vega spreads.
  4. Where is the source data? TIA.
  5. There are many ways to structure a long vega bet but the answer is not as simple as you may like and it is largely dependent on the risk you are willing to take and the magnitude and timing of your forecasted volatility increase.

    Generally there are two main ways to go long vega. Through a straddle/strangle or a time spread of sorts. Each carries their own risk characteristics. The straddle/strangle is delta neutral but carries theta risk while the time spreads are mostly structured neutral to positive theta but carry delta risk. So the first place to start would be to pick your favorite greek flavor and go from there. Buying a straddle 12 months out will most likely do nothing for you.