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miggety


Total Posts: 1
Joined: Nov 2012
 
Posted: 2014-08-16 02:50
I've read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be cointegrated to form a stationary series. The basic idea being to trade on the oscillations about the equilibrium value of the spread. While i understand how this is accomplished with equities, i'm not sure how suitable implied volatility pairs on equity options are identified since both implied volatility series would already be stationary and so cointegration would not be required. Can someone please explain to how suitable implied volatility pairs are identified?

Jurassic


Total Posts: 152
Joined: Mar 2018
 
Posted: 2018-05-18 17:37
interesting

fomisha


Total Posts: 33
Joined: Jul 2007
 
Posted: 2018-05-24 03:15
Just like with delta one products but valuation, risk management and execution are orders of magnitude more complicated.

Take a look at this example:
https://www.linkedin.com/pulse/valuing-options-leveraged-etfs-misha-fomytskyi/

qazwsxedc


Total Posts: 89
Joined: Jan 2007
 
Posted: 2018-06-02 18:32
From your article: "...multiply it by the absolute value of the leverage..." Over what time frame does that hold? Intuitively, it does not account for volatility of the leveraged leg decaying over time in absolute terms as a result of volatility drag. Or am I missing something?

fomisha


Total Posts: 33
Joined: Jul 2007
 
Posted: 2018-06-13 20:58
In SPY vs SDS example, the daily (absolute) return of SDS is always twice the daily return of SPY (not counting dividends and fund expenses) regardless of the time frame. If daily returns are autocorrelated, then multi-day returns will on average scale differently. Is this what you are referring to?
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