Volatility trading


Active member
173 0
I'm not sure exactly what you mean by pure volatility strategies - I use a form of Volatility Investing rather than Volatility Trading - what are you doing or thinking of doing?

Dr Mike

92 1

I was trading a volatility system on the S&P 500 early in the year but stopped as the average daily index range became too low for the system to work.

I understand that most of the volatility index systems have had considerable drawdown over the last year.



93 0

I am indeed trading options. I am unaware that one can speculate on implied volatility or position oneself to profit from a convergence/divergence in 2 points on the volatility surface any other way.

I currently trade vol in 2 ways:

1) Is a dispersal method based on the relative value of 2 baskets of options on assets within the S&P 100 whos volatilities have, on average deviated from one another more than they statistically ought. I define this as a > 2 standard deviation move.

Having identified the assets I go long the straddles on one set and short the other. This is quasi-hedged in vega terms but often gets a bit of a delta overhang because the straddles are at the money so there is a lot of gamma.

To hedge this I do a proxy hedge with the index options. This of course exposes me to the instability of correlation between the basket I am trading (which are components of the index) and the whole index as represented by the option.

2) Is a single asset relative value calendar spread strategy. This is based on the convergence and divergence of different points on the S&P 500 volatility surface. For example. You may find that the 25 and the 15 delta are trading at a 5 vol difference when the mean is 3 and the standard deviation is 1. This would imply an opportunity to do a vega neutral calendar spread.

These strategies have worked well for some time but are computationally intensive and require further refinement. Especially in regard to the risk incurred via the proxy hedge in strategy 1 above.

Any thoughts, experiences etc much appreciated.




Well-known member
446 4
Check out the VIX that I think corresponds to the S&P500 IV, I think it;s traded on the CBOE or EUREX


93 0
Robertral said:
Check out the VIX that I think corresponds to the S&P500 IV, I think it;s traded on the CBOE or EUREX

Yeah, they have just introduced futures and options on the VIX (which has always been on the S&P 100 until last month when they changed the methodology of calculation and shifted it to the 500). The new VIX contracts are cool because it is an easier way of extracting the markets view of the forward implied vol.

I have as yet to trade them though, has anyone else played with these yet?


Established member
752 6
The VXO (the "New VIX") has popped up a bit today. Currently tickling the underside of the +15% band drawn around the 10 day sma of the VXO. The attached chart is a bit noisy, but simple enough. The pale blue is the 10 day sma, and the pink , yellow and dark blue lines the 5%, 10% and 15% bands drawn around the 10 day sma. The VXO rarely spends long either above or below the 15% band, so maybe an opportunity for a short term IV sale here? The brown is the S&P500.


  • VXO040105.gif
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