Volatility Arbitrage - How to Start
How volatility arbitrage works and how to do it
A lot of you have requested that I start covering topics on options and specifically volatility so here we go! This will be the first of many posts that cover those topics so consider getting a subscription to not miss out on them:
https://www.vertoxquant.com/62375e34
Volatility Arbitrage is probably the most well known volatility strategy so that’s what we’ll be starting with. It’s also very misunderstood as it’s NOT just trading the difference between implied and realized volatility.
Table of Content
What Volatility Arbitrage ACTUALLY is
Measuring Realized Volatility
Forecasting Realized Volatility
Black-Scholes Model
Solving for IV
IV Dynamics and the IV Surface
RV Forecast vs IV
Hedging
Volatility Arbitrage in Practice
Concerns
Final Remarks