Advanced Options Volatility Trading: Strategies and Risk Management

Quant Trading Strategies & Ideas
1

Dear Team ,



In Course "Advanced Options Volatility Trading: Strategies and Risk Management" , Section 8 , "Trading Volatility Skew" , the conditions presented were below:



Long Entry and Exit Signals

  1. Entry Condition: A long position in the underlying asset is opened when the value of volatility skew is greater than 10%.
  2. The long position is held as long as the value of volatility skew is greater than 10%.
  3. Exit Condition: The long position is closed when the value of volatility skew is less than or equal to 10%.
Now in course "Options Trading Strategies In Python: Intermediate" - Section 11 - "Volatility Skew" - 
"Strategy Using Volatility Skew", the condition were Long position to be taken when it is less that -5%.

Now I am confused . Please review and update as Volatility Skew trading condition has to be same in all courses .

Thank you !!!
With Warm Regards
Nandagopal
 
2

Hi Nandagopal,



These strategies are based on two different approaches to trading volatility skew.

  1. The strategy in the Options Trading Strategies Intermediate course is based on the traditional approach to trading volatility skew. Here, a long position is taken when the skew is negative, meaning the call IV is greater than the put IV. This suggests a higher demand for calls, indicating a perception of a probable upside in the market.
  2. Conversely, the strategy covered in the Advanced Options Volatility Trading course is based on the rationale that the market may be overestimating downside risk, leading to increased demand for puts. In this case, a contrarian approach is taken, trading with a long view when the skew is significantly positive.

Both approaches have their merits and are for different market conditions. It's essential to choose a strategy that aligns with your market outlook and risk tolerance.