Re: Volatility trading

[Daniel Davies <dsquared@xxxxxxxxxxxxxxxx>]

I hate to say it, but you can already trade VIX options, and one of the things you would need to know in order to price them, would be the volatility of the VIX index.

 

I hate this nomenclature, btw; what the VIX measures is the average price of option premium.  That is the underlying fact; to call it "volatility" is to bring in a theory.  You could call the Lloyd's average reinsurance premium an "Index of the Volatility of Maritime Bouyancy", but that wouldn't make it one.

 

dd

-----Original Message-----
From: PEN-L list [mailto:PEN-L@xxxxxxxxxxxxxxxx]On Behalf Of raghu
Sent: 17 July 2006 22:40
To: PEN-L@xxxxxxxxxxxxxxxx
Subject: Volatility trading

Business Week has an article about the new "volatility asset class". So now we will be tracking the volatility of the volatility indexes? Anyone seriously believe that these so-called hedges will actually decrease volatility?

How much longer before we have "volatility of volatility" asset classes?

http://www.businessweek.com/magazine/content/06_30/b3994046.htm
-raghu.

------------------snip
The dizzying 100-point-plus swings in the Dow Jones industrial average over the past few months have been enough to send most investors reaching for the Dramamine. But a few money managers are diving into the choppy markets headlong. Using a slew of complicated options and futures strategies, their goal is to trade the volatility itself.


A few years ago volatility traders were niche players at big banks. Now they're moving to established hedge funds or setting up their own so-called vol funds. The pitch to prospective investors: Volatility should be considered an asset class in itself, like stocks, bonds, or commodities.