Profiting from volatility

vvlaptopOptions enable an investor to achieve uncorrelated profits impossible to plain stock investors

e.g. to profit from the expectation of calmer or more volatile markets, independent of the neccessity to chose a direction. Often an investor is confronted with a decisive situation. Clinical results of a study may make or break a pharma stock. The same yields regards relevant court rulings, elections or alike. Only one thing often is for sure, stocks will move afterwards. So why not profit exactly from this information? Options can achieve this. Especially longer dated options gain in value if the markets expect more volatility down the line. Volatility indices enable an investor to bet exactly on the tendency of markets to move. Further positive effect: Volatility tends to go counter the general market trend. As downward moves often are more violent than upward swings, volatily has the tendency to jump in a crash. Combining a long volatility position with a long stock investment thus often enables an investor to receive some compensation in case of a crash. The stock position will fall in value, but the volatility leg will rise at the same time. In other times the gains from volatility trading happen at other times than the stock gains. So low correlation and the compensatory effects in case of a crash cause calmer and overall higher yields.