Trading Volatility 5: Advanced Volatility

What this episode covers

This episode details advanced volatility trading strategies, focusing on relative value trades. It explores various relative value trade types (dual listing, share class, cross-holding, event-driven, and long-short), emphasizing mean reversion as the profit driver. Different implementation methods (cash/delta-1, options, and outperformance options) are compared regarding liquidity and risk. The text further examines trading earnings announcements/jumps, calculating implied jumps from option volatilities and adjusting for index term structure. Finally, it analyzes the limitations of Black-Scholes assumptions (known volatility and continuous hedging) in real-world scenarios, highlighting the importance of hedging frequency and using expected volatility for delta calculations, especially in long volatility strategies.

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