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Directional vol trading vs. vol arbitrage
edit(this comment was moved from the article to here)
Note to the editor of this page: This page is descibing directional volatility trading and not volatility arbitrage in the true sense. True volatility arbitrage involves taking many positions on the implied volatility surface in order to take advantage of volatility mispricings - i.e. implied versus implied and not implied versus realised. —Preceding unsigned comment added by 217.173.110.58 (talk • contribs)
- Hmm - I'm not sure I entirely agree with you. It's often the case that implieds may differ on the volatility surface for good reasons. For instance, implied for downside equity options are typically higher than for upside options because of the increase in default risk the downside options would face in the event of a stock price decline. I believe it's much more common to trade differences between forecast vol and implieds. Do you have experience in this type of trading? I'm curious to hear your view. Ronnotel 14:04, 1 November 2006 (UTC)
Hedging
editNote to User:143.238.14.123: it's not the case that the side of the underlier is always the opposite of the side of the options - that only holds for calls. When trading puts, the side of the underlier is the same. For instance, if you buy puts, you must also buy the underlier to hedge. I'm going to revert your change. Ronnotel 02:06, 6 January 2007 (UTC)
I think Ronnotel is correct, when you are trading different strikes or maturities , you might be trading the skew. — Preceding unsigned comment added by Yorchmb (talk • contribs) 21:46, 25 July 2011 (UTC)
Volatility
editThe volatility of a stock measures the dispersion of the future distribution of stock prices. The price range for any level of confidence will be higher with an 18% vol than a 16% vol, bit it is not true to state that "the stock is most likely to be 18% higher or lower from its current price...) David jr davies (talk) 01:20, 22 January 2008 (UTC)
- Agreed. I have removed that sentence. Finnancier (talk) 14:55, 1 February 2008 (UTC)
- yes, this is inaccurate. I was trying to use language that would be accessible to a non-statistician but I guess I flubbed it. How about something like there is a 63% chance of the stock price being within 18% of the current price (up or down) after one year.? Ronnotel (talk) 15:15, 1 February 2008 (UTC)