4 ms·

If you can reliably predicts the magnitude, even without the sign you can still trade very profitably on the volatility of a stock.

jnordwick 9y ago
Not so sure about that. I've literally missed the sign on a trade before, and it was 7-figure disastrous. (I've missed the direction of movement on individual symbols a number of times, but this one time I literally went the wrong way on everything by accident.) Markets adjust too quickly to flip your position and profit in any reliable way. On planned or anticipated events, people are all locked and loaded waiting for something to happen. However, I'd much rather know the sign because at least I can put on some position and guess a little at the magnitude.
- perl4ever 9y ago
  I have no professional experience in finance, and I wouldn't try to go long volatility because it's too expensive and risky, but why can't you buy puts and calls at the same time? Or, I have read that there are options on the VIX.
- oh_sigh 9y ago
  Obviously not every strategy will be sign independent, but you can design strategies to be that way.
quantgenius 9y ago
Yes, but there are easier ways to make money trading volatility than forecasting single asset volatility. While you can fairly easily forecast volatility with R^2 higher than 60% for most assets vs 5-7% for the best models for returns, that's not the important bit. The important bit is whether you are better than the rest of the market. I would argue that implied volatility is harder to trade off a forecast than straight return because a greater proportion of the participants in the vol market are professionals, and also more likely to be highly quantitative geeks. Also my comment wasn't about being able to forecast large moves but being able to determine how much a news item was going to move an asset. As far as handling important news events and getting out of the way is concerned, options market participants are very good at it and have been for a while.
qeternity 9y ago
Only if the vol mkt is mispriced. Spreads on most single names are wide enough to make this difficult or impossible, and deeper/tighter mkts tend to be much more efficient anyway.

jnordwick 9y ago

Not so sure about that. I've literally missed the sign on a trade before, and it was 7-figure disastrous. (I've missed the direction of movement on individual symbols a number of times, but this one time I literally went the wrong way on everything by accident.) Markets adjust too quickly to flip your position and profit in any reliable way. On planned or anticipated events, people are all locked and loaded waiting for something to happen. However, I'd much rather know the sign because at least I can put on some position and guess a little at the magnitude.

perl4ever 9y ago
I have no professional experience in finance, and I wouldn't try to go long volatility because it's too expensive and risky, but why can't you buy puts and calls at the same time? Or, I have read that there are options on the VIX.
oh_sigh 9y ago
Obviously not every strategy will be sign independent, but you can design strategies to be that way.

quantgenius 9y ago

Yes, but there are easier ways to make money trading volatility than forecasting single asset volatility. While you can fairly easily forecast volatility with R^2 higher than 60% for most assets vs 5-7% for the best models for returns, that's not the important bit. The important bit is whether you are better than the rest of the market. I would argue that implied volatility is harder to trade off a forecast than straight return because a greater proportion of the participants in the vol market are professionals, and also more likely to be highly quantitative geeks. Also my comment wasn't about being able to forecast large moves but being able to determine how much a news item was going to move an asset. As far as handling important news events and getting out of the way is concerned, options market participants are very good at it and have been for a while.

qeternity 9y ago

Only if the vol mkt is mispriced. Spreads on most single names are wide enough to make this difficult or impossible, and deeper/tighter mkts tend to be much more efficient anyway.