Volatility trading

Discussion in 'Options' started by clarodina, Dec 18, 2010.

  1. How to trade volatility purely? The pnl should purely determine from the movement of volatility and not because of price movement. Off course there is theta. How to determine the amount of change of option value is due to price movement and how much is due to volatility change and how much is due to theta. Off course practically and not using therotical value from model
  2. Does volatility really have to get volatile to profit from? Some strategies do not profit despite volatility is decreasing or increasing on a whipsaw fashion. Some decrease or increase 10 to 15% on a whipsaw fashion which in theory would affect the pnl but not in actual pnl Anyone would explain why?
  3. Do you need some books on volatility? I can't answer your question, but a couple of pdf books of mine could...

    I think one of the problems is the duration of the volatility. It may have fleeting and illiquid behavior at times, therefore making trading it difficult.
  4. Read filthy's (Euan Sinclair's) book of the same title.

    Filthy is a real trader (unlike most monkeys who 'write' books), and although he has a PhD in physics, he favours the intuitive (eg, derivation of BSM without resorting to Ito or Martingales). Not that there is anything wrong with that, but I doubt the majority of ETers are able to tie their shoelaces let alone understand advanced mathematics.
  5. I would second Equalizer's suggestion wholeheartedly. Filthy has another book out now, which should be just as good.
  6. Tks for the recommendation. Have a question about what affect the option price? Price movement, implied volatility changes, theta. What else?

    And is theta the same for different stk with same expiry? IBM has expiry at 26d and loss value 0.03 per d. Would msft having same expiry at 26d would loss value 0.03 per d or different amount?
  7. Clarodina-san, the questions you ask are very basic. Many people here would be able to answer them, but do you really want someone to "give you a fish"? Wouldn't you rather try to figure out the answers yourself and achieve better understanding of optiions in the process? Just my humble suggestion...
  8. drcha