How to Trade the Volatility Smile

How to make money from forecasting the volatility smile

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.

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Table of Content

1. What and Why is the Volatility Smile

2. How to Model the Volatility Smile

3. Arbitrage in Volatility Surfaces

4. Arbitrage-free SVI

5. Predicting the Volatility Smile

6. How to Trade the Volatility Smile

7. Final Remarks