When options trading, there is a very critical value, that is, volatility, investors are also very aware of how amazing volatility is
The popular interpretation of volatility refers to the degree of volatility of financial assets**, which is a measure of the uncertainty of asset returns and is used to reflect the risk level of financial assets.
The higher the volatility, the more volatile the financial asset** is, and the greater the uncertainty of the return on the asset
The lower the volatility and the smoother the volatility of financial assets**, the greater the certainty of asset returns.
1. Historical volatility of options
In the options market, historical volatility is a kind of data that reflects the volatility of the underlying asset in the past period, that is, the annualized standard deviation of the daily return in a specified period of time. Historical volatility is calculated by determining the time period and the value method, which can be the last 30 days, 90 days, or any appropriate number of days**Prices are usually applied per day.
2. Option future volatility
Future** volatility is the annualized standard deviation of the daily return over a specific period in the future. When using the B-S option pricing model to calculate the option theory, the original definition required future volatility, but this parameter is not currently available, so other volatility is usually used instead in practical applications.
3. Expected volatility of options
*Volatility is the volatility that people actually use when pricing options theoretically. This means that the volatility used when discussing option pricing is generally referred to as volatility. It is important to note that volatility is not equal to historical volatility.
4. Option implied volatility
Implied volatility is unique to the options market, and it can indicate the expected future volatility of the market. Through the analysis of implied volatility, the understanding of market sentiment and the study of the benchmark trend have certain indicative significance.
The calculation of implied volatility is very simple, as long as the state of the real and imaginary value of each option, the size of the trading volume, the duration of the option and other factors, the comprehensive implied volatility of a certain day is obtained through the calculation, and the curve of the implied volatility index is obtained according to the date line, so as to reflect the market conditions.
1. Short volatility
When implied volatility is "too high", traders should sell volatility so that once volatility returns to normal levels, it can be converted into capital. At this time, the commonly used strategies are selling (wide) straddle combinations, etc.
2. Long volatility
Contrary to selling volatility, when volatility is "too low", volatility rises when the market returns to normal, and strategists who want to trade volatility buy it. At this time, commonly used trading strategies include buy straddle combinations, reverse arbitrage, calendar arbitrage, etc.
1. Delta neutral hedging and option copying
In the process of hedging OTC options, directional exposure risk is taken as the first priority, delta hedging is the top priority of the hedging process, and other Greek hedging is taken into account, the difference between pricing volatility and actual volatility becomes a real risk, and liquidity and discontinuity become potential uncertainties in the hedging process, resulting in additional hedging costs other than volatility deviation.
2. Volatility long strategy
The strategy of long volatility of options mainly refers to the strategy used when it is expected that the underlying will fluctuate greatly or the degree of volatility tends to be amplified in the future, so as to cover the cost of the option.
3. Volatility short strategy
The strategy of shorting volatility of options mainly refers to the expectation that the underlying ** will tend to be sideways or volatile in the future.
The strategies used when the degree of momentum tends to shrink so that it cannot cover the cost of ** options are the more common strategies to sell straddles and sell wide straddles.