Exposure to volatility

M

magimagiman

Hello,

I have some understanding of options, their pricing and various strategies, but I do not completely understand how to get pure implied vol exposure...

say I buy a 1 month ATM straddle I'll be exposed to volatility but if the spot price doesn't move then at expiry my loss is consideration paid. I am at the mercy of this path dependency. How can I get pure exposure to implied vol using options? What is the way that they achieve a pure vol exposure in ETFs such as the VXX?

Many thanks :confused:
 
Quote from magimagiman:

Hello,

I have some understanding of options, their pricing and various strategies, but I do not completely understand how to get pure implied vol exposure...

say I buy a 1 month ATM straddle I'll be exposed to volatility but if the spot price doesn't move then at expiry my loss is consideration paid. I am at the mercy of this path dependency. How can I get pure exposure to implied vol using options? What is the way that they achieve a pure vol exposure in ETFs such as the VXX?

Many thanks :confused:
More...

What are you looking to make that bet in, indexes or individual stocks? IF the index is your target, obviously the VIX future is the best pure bet. There are some other vol futures like for GOLD vol, but none for stocks like Apple.
 
Quote from magimagiman:

Hello,

I have some understanding of options, their pricing and various strategies, but I do not completely understand how to get pure implied vol exposure...

say I buy a 1 month ATM straddle I'll be exposed to volatility but if the spot price doesn't move then at expiry my loss is consideration paid. I am at the mercy of this path dependency. How can I get pure exposure to implied vol using options? What is the way that they achieve a pure vol exposure in ETFs such as the VXX?

Many thanks :confused:
More...

An ATM straddle (delta neutral) has the highest exposure to impl vol (look at the vegas).

Sure, trade VIX futures to get vol exposure. VXX is supposed to replicate the front month futures, but it has certain implications (read: don't buy it for a long hold).
 
Thank you both, but I'm not looking to gain exposure via VIX futures or other related products. I also understand their mechanics and qualities.

What I'm looking to do is trade volatility in a more customised way.. strangles, straddles etc across other assets such as fixed income, commodities, or single stocks. So my question is really a mathematical one... how do sellers of volatility (the banks) extract just the implied volatility using baskets of options.. from my understanding buying a straddle and delta hedging still exposes you risk of the strike settling at spot, no?
 
Quote from 1245:

What are you looking to make that bet in, indexes or individual stocks? IF the index is your target, obviously the VIX future is the best pure bet. There are some other vol futures like for GOLD vol, but none for stocks like Apple.
More...

Say I want pure exposure to Apple volatility and I buy puts and calls, how do I ensure that my payoff is only related to the implied vol?
 
Quote from magimagiman:

Say I want pure exposure to Apple volatility and I buy puts and calls, how do I ensure that my payoff is only related to the implied vol?
More...

I can't think of an option strategy without risk from other Greeks, and just Vega. You can't remove all delta and theta risk and just target Vega.

Sorry.....1245
 
Quote from magimagiman:

Say I want pure exposure to Apple volatility and I buy puts and calls, how do I ensure that my payoff is only related to the implied vol?
More...
Trade a full variance strip (quadratic weighting on the strikes) and delta hedge daily. You mileage will vary.
 
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