Volatility Harvesting


An intriguing read, “Volatility Harvesting: Extracting Return From Randomness” covering a range of topics including volatility pumping, volatility harvesting, Parrondo’s Paradox, and Shannon’s Demon.

Volatility as an Asset Class


A nice overview of the cyclical nature of volatility trading by Jonathan Kinlay entitled, “The Case for Volatility as an Asset Class”. For options traders, the idea of volatility as an asset class is taken for granted. For most others, it’s likely they’ve never given these strategies much of a thought. That’s unfortunate given the excellent diversification (i.e. uncorrelated returns) provided by most volatility strategies.

Systematic Scalping: A reference approach to daily gamma scalping


As a follow-up to my previous article on “Gamma Scalping Cypress Semiconductor”, I take a look at an alternative approach to gamma scalping. The initial article elicited many questions regarding the timing or triggers that prompt delta hedging. In this article I compare our initial, ad lib hedging results with a more systematic strategy that hedges (i.e. neutralizes) the position delta once-a-day at the closing price. This more systematic approach will serve as a reference to evaluate the efficacy of the ad lib approach to hedging.

Love Gamma? Where to find the highest gamma to theta ratio


If you’re an options traders that likes to get a lot of bang for your buck, here are two things to look for in an underlying security that can help maximize the ratio of gamma to theta in your options position.

When To Hedge Delta: Why There's No Good Answer


In the course of explaining delta-neutral trading strategies, the question that inevitably arises is when to hedge the net position delta. It’s a great question, but a question with no good (i.e. definite) answer.

Theta: A Detailed Look at the Decay of Option Time Value


Of all the option sensitivities, or Greeks, there is likely none that is obsessed over by beginning options traders as much as theta. It seems that this obsession largely stems from a fear that they might be the sucker that gets stuck owning some rotting, soon-to-be worthless option contract. Given all this obsessing, one might expect a better understanding of theta. Unfortunately, many beginning and experienced option traders alike fall prey to generalities concerning the nature of theta. Hopefully this article will provide some insight into the specifics of time decay.

Volatility, Price and Delta: The Effects of Implied Volatility and Underlying Price on Delta


For options traders trying to understand how the value of an option might change given a change to one of the pricing model components, the obvious source for answers are the option sensitivities, otherwise known as the “Greeks”. What’s not as well know is that there are second-order sensitivities that can help explain how these first-order sensitivities change given a change to one of the pricing components. “Vanna” is a second-order sensitivity which describes the change in delta given a change in volatility.