Little more than a year ago I started some research in a relative volatility play. The idea was to take a sector of rather similar stocks, look at their implied volatilities and trade the top quintile against the lowest quintile by means of strangles. The basket was US banks and all tests indicated good and stable returns, even after assuming reasonable slippage. We used data from ivolatility and started trading. We closed the strategy two months later with a moderate loss, since we had to accept that tradingcosts for rehedging, rolling etc accounted for about 4-5 volapoints. Since our two baskets of stocks differed in their implied volatilities only by about 8 to 10 volapoints, there was no edge.
I still wonder if our problem was the strategy as such or solveable things like data quality. With options it is always difficult to build strategies, since accurate data is not easy to get. Today we use optionvue, but i still feel that finally we have to save data on his own. If you buy data which averages between expiration dates you are inevitbale biased, believing there is a trade, although the market has already priced it in.
From my perspective there might be opportunity for that kind of strategy, although I do not anybody really trading such a thing. Anybody experienced with that kind of trading?
I still wonder if our problem was the strategy as such or solveable things like data quality. With options it is always difficult to build strategies, since accurate data is not easy to get. Today we use optionvue, but i still feel that finally we have to save data on his own. If you buy data which averages between expiration dates you are inevitbale biased, believing there is a trade, although the market has already priced it in.
From my perspective there might be opportunity for that kind of strategy, although I do not anybody really trading such a thing. Anybody experienced with that kind of trading?
