First, short-term fluctuation strategy

The strategy of shorting the volatility of options mainly refers to the strategy used when the target price tends to be sideways or the volatility tends to decrease in the future, which cannot cover the cost of buying a single option. Common choices are selling across strategy and selling across strategy.

One of the advantages of shorting volatility strategy is that the winning rate is relatively high and the profit curve is relatively stable. Therefore, although the potential income of short volatility strategy is limited, it is still a good strategic choice, which can form a good complement with CTA strategy and optimize the net value curve.

Second, advanced fluctuation strategy.

Option volatility strategy can not only be simply divided from the perspective of long and short, but also has multiple dimensions in time, including volatility term structure and volatility curve. The different maturity dates of options realize the market-oriented measurement of the implied volatility term structure of options, which opens up a space for investors to trade the volatility term structure of options.

Third, do multi-fluctuation strategy.

The strategy of making multi-option volatility mainly refers to the strategy used when the target price fluctuates greatly or the fluctuation degree tends to be enlarged in the future, so as to cover the cost of buying options. The common strategies are buy across strategy and buy wide across strategy.

One of the advantages of multi-fluctuation strategy is that the loss is limited, the potential profit space is immeasurable, and you may enjoy high leverage when making profits. However, because the underlying price often fluctuates or fluctuates slightly, it is impossible to overcome the attenuation of time value and the decline of volatility, and it often takes a long time to bear the floating loss to make a multi-volatility strategy.

What is option volatility and how to calculate it?

Implicit volatility is investors' expectation of the actual volatility of future underlying assets in the option market, which has been reflected in the pricing process of options. Theoretically, it is not complicated to obtain implied volatility, because the option pricing model provides a quantitative relationship between the option price and five basic parameters (the underlying asset price St, the exercise price X, the risk-free interest rate R, the remaining maturity time T-t and the volatility σ).

As long as the first four basic parameters and the actual market price of options are substituted into the option pricing model as known quantities, the only unknown quantity σ, namely implied volatility, can be solved. Therefore, implied volatility can be understood as the market's expectation of actual volatility.

Option pricing model needs the actual volatility of the underlying asset price within the validity period of the option. Compared with the current period, it is an unknown number, so we usually use the estimated value of historical volatility as the forecast volatility.

The more accurate method is the combination of quantitative analysis and qualitative analysis, with historical volatility as the initial forecast value, and through the analysis of quantitative data and new actual price data, the final volatility value is determined.

Source: option sauce

The Influence of Volatility on Options

Volatility is an important factor affecting the option price and plays a key role in the pricing formula of Black-Scholes option. When calculating the theoretical price of options, the historical volatility of the underlying assets is usually used: with the increase of volatility, the theoretical price of options increases; When the volatility decreases, the theoretical price of options decreases. Volatility has a positive impact on option price.

For the buyer of the option, the cost of purchasing the option has been determined, and the increase of the volatility of the underlying asset will increase the possibility that the price of the underlying asset deviates from the exercise price, thus increasing the potential income. Therefore, the buyer is willing to pay a higher premium to buy options.

For the seller of the option, the increase of the volatility of the underlying assets means taking on greater price risk, so the seller needs to charge higher equity fees as compensation. On the contrary, the reduction of the volatility of the underlying assets will reduce the potential income that the option buyer may get, and at the same time reduce the price risk of the seller, so the option price is lower.

The fluctuation of basic assets has a two-way influence on the option price, which reflects the market's expectation of future fluctuations and determines the attitude and pricing of options buyers and sellers in the transaction.