Volatility Arbitrage

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Dictionary Says

Definition of 'Volatility Arbitrage'

Trading strategies that attempt to exploit differences between the forecasted future volatility of an asset and the implied volatility of options based on that asset. Because options pricing is determined by the volatility of the underlying asset, if the forecasted and implied volatilities differ, there will be a discrepancy between the expected price of the option and its actual market price.

Investopedia Says

Investopedia explains 'Volatility Arbitrage'

A volatility arbitrage strategy is generally implemented through a delta neutral portfolio consisting of an option and its underlying asset. A long position in an option combined with a short position in the underlying asset is equivalent to a long volatility position. This strategy will be profitable if the realized volatility on the underlying asset eventually proves to be higher than the implied volatility on the option when the trade was initiated. Conversely, a short position in an option combined with a long position in the underlying asset is equivalent to a short volatility position, which will be profitable if the realized volatility on the underlying asset is ultimately lower than the option's implied volatility.
Search results for

'Volatility Arbitrage'

  • Arbitrage Squeezes Profit From Market Inefficiency

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    ... Volatility Arbitrage Volatility arbitrage is a popular type of statistical arbitrage
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  • Maximize Profits With Volatility Stops

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    Maximize Profits With Volatility Stops. ... In the past Investopedia.com has covered
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  • Volatility - The Birth Of A New Asset Class

    http://www.investopedia.com/articles/optioninvestor/05/VIXindex.asp
    ... Read More »; Price Volatility Vs. Leverage. Learn how to effectively gauge the risk
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  • Investment Strategies For Volatile Markets

    http://www.investopedia.com/articles/trading/08/strategies-for-volatile-market.asp
    ... the best and worst performers than the overall market performance and therefore
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  • Ratio Writing: A High-Volatility Options Strategy

    http://www.investopedia.com/articles/optioninvestor/02/111202.asp
    ... Read More »; Price Volatility Vs. Leverage. Learn how to effectively gauge the risk
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  • The ABCs Of Option Volatility

    http://www.investopedia.com/articles/optioninvestor/02/031102.asp
    ... Read More »; Price Volatility Vs. Leverage. Learn how to effectively gauge the risk
    of the markets you trade. Read More »; Trading The Odds With Arbitrage. ...

  • Option Price-Volatility Relationship: Avoiding Negative Surprises

    http://www.investopedia.com/articles/optioninvestor/05/020205.asp
    ... Read More »; Price Volatility Vs. Leverage. ... Trading The Odds With Arbitrage. Profiting
    from arbitrage is not only for market makers - retail traders can find ... ...

  • Does Higher Risk Really Lead To Higher Returns?

    http://www.investopedia.com/articles/trading/11/higher-risk-higher-returns.asp
    ... 2011 Financial Analysts Journal and entitled, "Benchmarks as Limits to Arbitrage:
    Understanding the Low-Volatility Anomaly," demonstrated that from Jan. ...

  • CFA Level 1 Study Guide - Fixed Income Investments - Volatility ...

    http://www.investopedia.com/exam-guide/cfa-level-1/fixed-income-investments/volatility-risk.asp
    ... 14.37 Bond Value and Price; 14.38 Arbitrage-free Valuation Approach; 14.39 Typical ...
    Rates vs Spot Rates; 14.46 Measuring Interest Rate Risk; 14.47 Price Volatility ...

  • CFA Level 1 Study Guide - Derivatives - Arbitrage | Investopedia

    http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/arbitrage.asp
    ... 14.37 Bond Value and Price; 14.38 Arbitrage-free Valuation Approach; 14.39 Typical ...
    Rates vs Spot Rates; 14.46 Measuring Interest Rate Risk; 14.47 Price Volatility ...

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