Implied Volatility vs. Real Volatility

thanks

it has a few things about harvesting risk premia (what most of vol trading is) that i think people in this thread would find helpful.
 
Quote from filthy:

thanks

it has a few things about harvesting risk premia (what most of vol trading is) that i think people in this thread would find helpful.
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Nice handle.... its a messy world out there :)
 
Quote from newwurldmn:

Good luck with studying of the options. My advice is to understand the pricing mechanics. It will help you understand what the greeks mean and how they will change. As a retail trader it's hard to make money any other way with options except for buy writing, etc. In that case, focusing a lot of the greeks is less important.
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Thanks. Alas my definition of keeping things simple does not extend to ignoring greeks, so I do keep a close eye on them.
 
Quote from Trader13:

Sounds like a quasi-dispersion strategy. Are institutional desks and funds still active in dispersion trading, or has it lost popularity as "yesterday's" strategy?
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Dispersion is still pretty popular, though marginally less so since 2008. However, most of my strategies have nothing to do with dispersion, not even in "quasi" form - i am playing various intra- and cross-asset risk prema, e.g. I can be putting on relative skew trades or relative term structures.

Quote from comintel:
The math. of volatility surfaces provided by Jim Gatheral is pretty complicated. Do you think that it is necessary to work through it carefully to understand it completely or do most people (students or practitioners) just go for the general idea?
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Not really. The work is largely academic and mainly geared toward quantitative research. Most of my "models" are very ad hoc and tactical in nature, which is a much better approach in my view.

Quote from justrading:
It is not necessary to understand the physics of the internal combustion engine in order to benefit from having and driving a car. Energy conversion, torque, drive-train efficiency are nice to know if you are a mechanical engineer, but for a driver knowing that the car needs a particular grade of fuel etc is sufficient.
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I think to extend this analogy, to simply "drive" options you can easily trade just using break-evens. To be a race car driver (options market maker or a volatility arbitrageur), you have to understand the Greeks and dynamics of both prices and price inputs. To be an race car engineer, you need to read Gatherals book and many other books.
 
Quote from justrading:
It gets boring when people say 'I trade short gamma'. Why not just say 'I sell options' or 'I trade ratio/back spreads'. Isn't that a lot more precise?
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Because you can be short gamma and still be net long risk premium. You can have ratio spreads and be long gamma etc. Greeks define your instantaneous risk and also explain your instantaneous P&L. This is especially important if you are running a large options book where there are various risks at play and it's hard to define your exact position.
 
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