3 ms·
Volatility is a bit more predictable than price. And there are more complex formulae that also model volatility rather than treat it as a constant.
by dr1ver 3y ago
Volatility is a bit more predictable than price. And there are more complex formulae that also model volatility rather than treat it as a constant.
- lupire 3y agoIf volatility is predictable, it would quickly be traded until it became unpredictable and unprofitable.
- richrichie 3y agoIt is a well known empirical fact that volatility is mean reverting.
- slt2021 3y agothe hardest thing obviously is to time the moment when it will start mean reverting. there is possibility you can take trading position with expectation of vol reverting to the mean, and vol will keep increasing (what happened to tesla and gamestop short sellers) and vice versa
- throwawayFinX 3y agodr1ver is correct here and you are not. Actual volatility (not implied!) is much easier to predict than price. It’s also much more difficult to trade than price changes. So your intuition about this is correct though. It is not super difficult to predict tomorrows volatility sign (up/down compared to today) with +60% success. Even textbook GARCH models do well here. If you could do that with the price, you’d quickly become filthy rich.
- helsinkiandrew 3y agoPeople have been trading options and futures on the volatility of the S&P500 for years: https://www.cboe.com/tradable_products/vix/vix_options/ https://www.cboe.com/tradable_products/vix/vix_options/
- throwawayFinX 3y agoThis is also (slightly) incorrect. When trading the VIX, you are trading the implied volatility not the actual (realized) volatility. VIX represents the implied vol of options on S&P500 expiring 30 days into the future. Trading the realized volatility is not easy :)