Abstract
In this section, we will discuss what may be the most creative of the options strategies: volatility trades. As previously explained, volatility is essentially the risk aspect of the market. It is the perception of risk that is ‘securitized’ in the time value component of an option premium. As mentioned in Chapter 2, there are three ways to measure volatility. One method is the historical basis which measures what has happened in the past and is expressed as the annualized standard deviation of percentage changes in the underlying asset. The second is the implied volatility which is the current volatility associated with the option’s price. Finally, there is the method of volatility estimation which forecasts future volatility by using econometric techniques which incorporate both the historical and implied techniques.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Copyright information
© 1991 Palgrave Macmillan, a division of Macmillan Publishers Limited
About this chapter
Cite this chapter
Tompkins, R.G. (1991). Volatility Trading Strategies. In: Bund Options. Finance and Capital Markets. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-12800-6_5
Download citation
DOI: https://doi.org/10.1007/978-1-349-12800-6_5
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-0-333-56910-8
Online ISBN: 978-1-349-12800-6
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)