Trading range contraction

N

nfactorial

Hi,

If you had an algorithm to predict whether tomorrow's daily range will expand or contract (compared to today's) with better than average accuracy how would you exploit it?

I was thinking of using options to get vega exposure but I'm not sure I can make it work for such a short timeframe. And exposure to delta would be costly to neutralize.
 
Quote from nfactorial:

If you had an algorithm to predict whether tomorrow's daily range will expand or contract (compared to today's) with better than average accuracy how would you exploit it?

it would depend on the size of the range


I was thinking of using options to get vega exposure but I'm not sure I can make it work for such a short timeframe. And exposure to delta would be costly to neutralize.

Volatility isn't going to expand/contract much, if any, in one day just because the daily range varies.
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If the range is big enough you could do any option strategy that profits with movement: straddles, strangles, butterflies, double reverse calendars, etc. On days where the UL reverses, you might even nab something on both sides... all theoretical of course because you have to accurately predict large range days.
 
Quote from nfactorial:

Hi,

If you had an algorithm to predict whether tomorrow's daily range will expand or contract (compared to today's) with better than average accuracy how would you exploit it?

I was thinking of using options to get vega exposure but I'm not sure I can make it work for such a short timeframe. And exposure to delta would be costly to neutralize.
More...
Maybe you can port your algorithm to weekly charts ... :)
 
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