How to benefit from an expected rise in IV's

M

marinemonk

India will have its once in five year general elections at some point in the next 7 months. If the current government does not decide to call them earlier, they will have to be held in May 2014 as the term of the current government expires then.

It is almost a given that IVs will rise from the current levels the moment the elections are announced. I'm looking for a way to benefit from this increase without taking any directional call on the markets. Although India does have its own VIX, there is no futures on the VIX. If there were futures, I would have bought the futures and rolled them over till the elections.

Would like to know if there is a way to benefit from an expected increase in IVs in the absence of VIX futures. One has to keep in mind that the IVs could increase sharply at any point from now till May and be able to exit when that spike comes and of course, the fact that I'm looking for a non-directional strategy.:confused:
 
Quote from marinemonk:

India will have its once in five year general elections at some point in the next 7 months. If the current government does not decide to call them earlier, they will have to be held in May 2014 as the term of the current government expires then.

It is almost a given that IVs will rise from the current levels the moment the elections are announced. I'm looking for a way to benefit from this increase without taking any directional call on the markets. Although India does have its own VIX, there is no futures on the VIX. If there were futures, I would have bought the futures and rolled them over till the elections.

Would like to know if there is a way to benefit from an expected increase in IVs in the absence of VIX futures. One has to keep in mind that the IVs could increase sharply at any point from now till May and be able to exit when that spike comes and of course, the fact that I'm looking for a non-directional strategy.:confused:
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There must be some ETFs replicating that country main stock market index. Buy atm calls, but you need to be accurate about the time. I mean don't buy too early because you are going to pay much in time decay just waiting for the spike. Timing is important.
 
There's no need for an ETF as there are options on the index traded here itself.

I'm trying to find a strategy that takes away the problem of timing. As you said, if I was clear on timing and sure that IVs are going to rise, the simplest thing would be to buy a straddle. I'm afraid that's not going to work.
 
Quote from marinemonk:

There's no need for an ETF as there are options on the index traded here itself.

I'm trying to find a strategy that takes away the problem of timing. As you said, if I was clear on timing and sure that IVs are going to rise, the simplest thing would be to buy a straddle. I'm afraid that's not going to work.
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a strategy that takes away the problem of timing is called buy and hold the underlying.
in the options world there is no such thing
 
Quote from marinemonk:

I'm trying to find a strategy that takes away the problem of timing.
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I've been trying the same thing.

Basically you want to be long vega (IV), and theta/gamma neutral. You can accomplish this with a "half calendar" - buy more longs than shorts. The number of longs/shorts needed will depend on which months you choose, which strikes, term structure, etc.

You can try to get gamma and delta neutral through options alone but it's kind of tricky, lot's of moving parts. Another method is to neutralize your gamma first, then use shares of the underlying to neutralize your delta.

Still a work in progress...
 
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