Volitility Trading

Discussion in 'Options' started by aeliodon, Aug 28, 2008.

  1. tpli

    tpli

    I agree, trading volatility is not for new option traders. I suggest learning about Delta first, that's probably the most important Greek you need to know for trading options.
     
    #11     Sep 5, 2008
  2. ...or rallymode.

    :D
     
    #12     Sep 5, 2008
  3. As i understand it, if you are not over leveraged and just short and hold whenever vix reachs 30+, you are most likely to win.

    The problem is there is really no 1 instrument like the es mini for spx, that tracks vix closely.

    Is this correct?
     
    #13     Sep 5, 2008
  4. cvds16

    cvds16

    don't try to think of this in simple terms, simple and options don't go together well. No you can't trade vix in itself. Yes, you could sort of replicate/trade vol with spy-options (to keep things small) but rolling things over could give you a hard time. That's why VIX-futures are so hard to price. If you don't know much about options this will take a huge effort to get to understand this.
     
    #14     Sep 5, 2008
  5. drcha

    drcha

    Yes, there is a way to isolate volatility. Read McMillan on Options. He explains this in detail. It can require a lot of margin and is an advanced strategy.
     
    #15     Dec 21, 2008
  6. I'd love to read that way to isolate volatility, though I am new trading options and only vanilla. I guess my expectations were higher because I got really disappointed on my first trade with options and I guess It was due to volatility.
     
    #16     Dec 22, 2008
  7. mktmkr

    mktmkr

    volume is low because banks use variance swaps, a pure vol bet, over the counter, available only to big customers and obviously sell side banks. i dont know of any listed product that isolates vol. if someone has an answer, please!!!! post it
     
    #17     Dec 23, 2008
  8. tigerwu

    tigerwu

    To answer your questions:

    1) volatility trading is very complex. If you are serious, you need to spend a few years understanding and trading vanilla options, then move on to more complex products like VIX and VarSwaps. To trade volatility without any theoretical basis is an invitation to disasters.

    2) volatility is not mean reverting. Yes, if you pull up a historical vol chart, it looks like it's reverting. But in reality, you trade a fixed maturity vol. You can trade a fwd starting VarSwap, but there's a whole bunch of other issues. (Capital, MTM, Credit etc...)

    3) I recommend reading Natenberg before you start. It's the bible for most options traders.
     
    #18     Dec 27, 2008
  9. tigerwu

    tigerwu

    A var swap is just a strip of 1/k^2 vanilla options. So you can theoretically replicate the payoff in the options market.

    And if you don't mind the path dependency, you can buy some atm straddle and delta hedge to extract volatility.
     
    #19     Dec 27, 2008
  10. mktmkr

    mktmkr

    Theoretically yes, but var swaps are not standardized nor listed, it would be nice to take advatage of a pure vol play w/o
    the hedges, maintanance, margin and the rest of the crap that comes with tradind listed options for a pure vol play. As
    Far as mean reverssion, looks missleadind and is false, must take
    duration into acct.
    So, is there a listed product like a var swap? Would be nice. There has to be a way to list it but then the banks would give up a hold on a profitable product
     
    #20     Dec 28, 2008