Volatility trading IS directional

Discussion in 'Options' started by TheBigShort, May 23, 2018.

  1. TheBigShort

    TheBigShort

    Hey everyone, when we look at the correlation between price and vol it is very close to 1. So if I think vol will expand I should also beleive the stock will move down in price. But if that's the case I might aswell trade the linearity of the underlying. I know options give you convexity but if I am purely taking a view on vol buying/selling atm Vega and delta hedging frequently 9 times out of ten wouldn't I do better just trading the underlying? Any thoughts?
     
    .sigma likes this.

  2. Options = Leverage
     
  3. TheBigShort

    TheBigShort

    Leverage = more variance in pnl. Plus I could use stock futures, margin, etc for leverage
     
    .sigma likes this.
  4. TheBigShort

    TheBigShort

    I'm thinking the real money in options is trading the spreads of vol either within the same asset or cross asset
     
    .sigma likes this.
  5. newwurldmn

    newwurldmn

    The real money in options is trading OTC with counterparties who don't care about pricing.
     
    wintergasp likes this.
  6. TheBigShort

    TheBigShort

    Why would someone not care about pricing? Can't you say the same for the less liquid exchange markets as well then?
     
  7. TheBigShort

    TheBigShort

    Do you do any spread trading? Can you give an example of a spread you did recently? Vol wise not direction
     
  8. newwurldmn

    newwurldmn

    There are lots of people who trade derivatives for other reasons. Derivatives trading is about harvesting these pennies that other leave on the floor.
     
  9. If you want to trade volatility strategies, you have to go delta neutral. Delta is your directional bias and you can eliminate it, through certain strategies. If you want some complex strategies and better explanations read “options volatility and pricing” by Sheldon Natenberg.
     
  10. You could use those strategies, but option buying or hedged selling positions have limited downside risks compared to the others. If you’re positioned accordingly the swings to PNL don’t have to be bigger.
     
    #10     May 23, 2018