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Now, in a portfolio consisting of, say, 10 such spread positions that are not correlated to each others... Diversification could enormously decrease overall risk, no? I don't know however if the number of potential spreads is large enough to manage a portfolio consisting uniquely of spread...

I understand that the bet would be that the historical correlation between the two will last. Before entering a position we would have to understand why such a correlation has been observed in the past and whether the fundamental circumstances explaining the high correlation have changed. How...

In essence it sounds similar to trading a currency pair, say the eur/dollars. We would sell the euro and buy the dollar following the rationale that historically the euro is high relatively to the dollar. Am I missing something? If we didn't want to take the currency risk we could hedge it by...

Would the trading of the vix/vdax spread considered a relative value arbitrage?

Hello Maw, I would say that the two underlying are well correlated. They move together but with different relative strength. Would the difficulty come from the fact that the spread between the two does not stay within a well defined range?

Hello, I would like your thought on something. I was comparing the chart of the VIX to the chart of the VDAX over the last year. The two are well correlated. Their "normal relationship" is therefore to move in sync. Now, sometimes, the spread between the two widens. Would a widening of the...

Ok, I will study this relationship and come back well I know a little more. Thanks for all your input.

Thanks for this post because it clarifies what you meant in other treads when you said that one has to look for anomalies. I have several questions: 1) The normal relationship is for the VIX to tick down when the e-mini ticks up. Therefore, the VIX and the e-mini are supposed to be negatively...

DMO, If I understand well you use the VIX as an indicator to trade the e-mini. you use divergences between the e-mini and the vix to tell whether the trend on the underlying is sustainable. In the case above, you would consider selling the e-mini and buying it back when the normal...

Could you state it another way because I am not sure I understand? (I am new to this). Are you saying that, if IV is relatively low, chances are that it will still be low in X period? And that if IV is relatively high, chances are that it will still be high in x second? But that wouldn't be...

dtrader98, thanks for the link. Their site seems very interesting too. Rosy2, Thank you so much for telling me about R. I will download the software and will ckeck it out as soon as I have a little bit of time.

Diamond Geezer, Thanks for the references.

Provided that you have IV historical data I would think that it should be easy to calculate IV's serial correlation on a specific period.

Hello, I have recently been trying to learn about trading the implied volatility. From what I read, IV is supposed to be serial correlated (or autocorrelated). From what I understand, it means that the movement IV will make in the next X days should closely match the mouvement IV has made...

Thanks a lot, I have just sent you a PM.

Extremely interesting. Howdo you neutralize vega and theta? Could you illustrate with an example?

I looked at the VIX chart: http://finance.yahoo.com/echarts?s=%5EVIX#chart3:symbol=^vix;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined -If we look at the VIX over its full history, it seems indeed to be mean reverting (with a mean around 18)...

In his book "Options as a Srategic Investment", McMillan argues that volatility often trade within a well defined range and his therefore more easily predictable than prices. I would like to have your opinion regarding the above statement. Do you believe it is true/false? Can you mathematicly...

I have recently started to read about options and heard about the concept of volatility trading. My goal is to become familiar with techniques of volatility trading. I have read a few books and they all seem to repeat the same information. Sometimes in web searches I come across terms such as...