Trading range contraction

Discussion in 'Trading' started by nfactorial, Apr 18, 2010.

  1. Hi,

    If you had an algorithm to predict whether tomorrow's daily range will expand or contract (compared to today's) with better than average accuracy how would you exploit it?

    I was thinking of using options to get vega exposure but I'm not sure I can make it work for such a short timeframe. And exposure to delta would be costly to neutralize.
  2. spindr0


  3. Alright, thanks.

    Then how could it be exploited, provided that the range is big enough?
  4. spindr0


    If the range is big enough you could do any option strategy that profits with movement: straddles, strangles, butterflies, double reverse calendars, etc. On days where the UL reverses, you might even nab something on both sides... all theoretical of course because you have to accurately predict large range days.
  5. charts


    Maybe you can port your algorithm to weekly charts ... :)