The volatility smile is of great importance to all options traders. Market makers use it to figure out where to quote and volatility traders use it to figure out where volatility will go.
In this article we are gonna learn about how to model the volatility smile and predict where it goes. This will allow us to run both maker and taker strategies.
Table of Content
What and Why is the Volatility Smile
How to Model the Volatility Smile
Arbitrage in Volatility Surfaces
Arbitrage-free SVI
Predicting the Volatility Smile
How to Trade the Volatility Smile
Final Remarks