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.